Interest Costs on the National Debt
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Every month, the U.S. Department of the Treasury releases data about the federal budget, including the interest costs that the federal government pays on the national debt. The following contains budget data through November 2024, the second month of fiscal year (FY) 2025.
Interest Payments in FY25
The rapid accumulation of federal debt, in addition to higher interest rates on that debt (relative to the past decade or so), has pushed up the federal government’s cost of borrowing. In fact, in the second month of FY25, interest payments on the national debt were higher compared to previous years.
$160B
Cumulative FY25 Interest Payments
$148B
Cumulative FY24 Interest Payments
(through November 2023)
As interest payments continue to rise, the federal government will likely devote a larger portion of the federal budget to such costs, thereby crowding out opportunities for investment in other important priorities in both the public and private sectors. Interest costs so far in FY25 are the fourth-largest spending category for the federal government — outpacing outlays for income security, Medicaid, and veterans’ benefits and services. Although Medicare (net of offsetting receipts) and defense spending were larger than interest during the first two months of this fiscal year, interest payments were larger than both of those categories for FY24 as a whole and are expected to again exceed those categories this year.
Interest Payments Over the Next 10 Years
The nation’s rising debt, and relatively high interest rates, will continue to put upward pressure on federal borrowing costs — interest costs are projected to be the fastest growing portion of the federal budget in upcoming years. The Congressional Budget Office (CBO) projects that if current laws generally remain the same, net interest payments will total $12.9 trillion over the next decade, rising from an annual cost of $1 trillion in 2025 to $1.7 trillion in 2034.
In fact, by pretty much any measurement, interest on the national debt will soon exceed the highest levels recorded in the post-World War II period:
- In dollar terms, interest costs reached an all-time high of $476 billion in 2022 and have risen rapidly since then to $882 billion in 2024.
- Relative to the size of the economy, interest costs would reach 3.4 percent of gross domestic product (GDP) in 2025 — eclipsing the previous high of 3.2 percent set in 1991. Interest costs would climb to 4.1 percent of GDP by 2034, under CBO’s projections.
- As a share of federal revenues, federal interest payments would rise to 20.2 percent in 2025, exceeding the previous high of 18.4 percent set in 1991. They would continue climbing to nearly 23 percent by 2034.
- As a percentage of total spending, interest costs would reach 15.8 percent by 2032, surpassing the previous high of 15.4 percent set in 1996.
Even excluding interest costs, the federal government spends more money than it collects, creating a structural problem in the budget. The increase in debt generated by that structural gap is exacerbated by ever-increasing interest payments, which endanger other spending priorities and could risk a fiscal crisis. To avoid such outcomes, the new Administration and Congress should implement options to put the budget on a sustainable path.
