What is Interest Expense on the National Debt?
Interest expense is what the federal government pays bondholders for the use of borrowed money — the annual cost of carrying the debt. As the debt grows and as interest rates rise, interest expense claims a larger share of total outlays and competes with discretionary programs for budgetary room.
Live data: Federal Outlays: Interest
Federal Reserve Economic Data (FRED) — · Annual, Fiscal Year · 12 observations
Most recent observation: 970,065 Millions of Dollars as of September 30, 2025.
Understanding Interest Expense on the National Debt
Interest expense is what the federal government pays bondholders each year for the use of borrowed money. It is a direct function of two inputs: the stock of debt and the average interest rate paid on that debt. Both have been rising, and interest expense has climbed from roughly 6% of federal outlays in 2015 to over 10% and still growing.
The rise matters because interest is mandatory — it must be paid before any other outlay. As interest takes a larger share of the budget, the room for discretionary spending shrinks unless taxes rise or deficits widen further. CBO projects that net interest will exceed defense spending within a few years and approach 20% of federal outlays by 2034.
The cost compounds: higher interest expense widens deficits, which adds to the debt, which drives future interest expense even higher. Breaking the cycle requires some combination of lower deficits, lower rates, or faster nominal GDP growth.
How Interest Expense on the National Debt is calculated
Treasury publishes interest expense monthly and annually. The figure captures gross interest paid on all marketable and non-marketable federal securities. 'Net interest' (reported in budget documents) subtracts interest received by the government on its financial assets. FRED series FYOINT tracks the gross figure by fiscal year.
Historical context
Interest expense peaked at over 3% of GDP in the mid-1990s when rates were high and debt was rising, then fell through the 2000s and 2010s as rates declined to record lows. It has risen sharply since 2022 as the Fed's hiking cycle lifted refinancing costs on the growing debt stock.
Frequently asked questions
Why is interest expense rising so fast?
Two reasons compounding: the debt stock is growing (deficits add to it every year), and the average interest rate paid on that debt is rising as low-yield bonds from the 2010s and early 2020s are refinanced at today's higher rates. Both trends are expected to continue.
Can the government just pay interest by issuing more debt?
It can, but that increases the debt and future interest expense further — the pattern that drives what economists call a 'debt spiral.' Sustained over long periods, this approach raises concerns about market appetite for Treasuries and can put upward pressure on the rates themselves.