Interest on the debt cost $1.4 trillion last year, audit finds

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(The Center Square) – Interest costs on the national debt totaled $1.4 trillion in fiscal 2026, according to an audit of Treasury's books released by the Government Accountability Office. About $1.1 trillion of that was paid out to bondholders, with the rest credited to federal trust funds the government owes itself.

The audit found total federal debt reached $40.2 trillion as of Sept. 30, up about $2.5 trillion in a single year and about double the $19.6 trillion the government owed a decade earlier. GAO found Treasury's schedules fairly presented and its internal controls effective.

Payments to bondholders have climbed sharply. The audit put interest expense on debt held by the public at about $392 billion in fiscal 2021, up to about $1.1 trillion last year. GAO attributed the increase to both the growing debt and higher interest rates.

Net interest trailed only Social Security benefits among federal spending lines last year, according to the Congressional Budget Office's Monthly Budget Review for fiscal 2026. CBO put net interest on the public debt at $1.14 trillion, a slightly different measure than the interest paid to bondholders, and more than the government spent on Medicare or Medicaid. It was about $225 billion more than the War Department spent on military activities. CBO reported net interest rose 11% in a year.

GAO attributed the growth in debt held by the public to spending that continues to outpace revenue. CBO reported the federal deficit at about $2 trillion in fiscal 2026, up from about $1.8 trillion the year before, and projects average annual deficits above $2.4 trillion over the next decade.

Matthew Dickerson, senior fellow for budget policy at the National Taxpayers Union, said he expects the debt limit to be reached in February 2027. Treasury would then have just under $1.5 trillion in cash on hand and need to take extraordinary measures to keep paying the government’s obligations, he said. He anticipates would resources to be exhausted by the end of November 2027.

"Congress doesn't need to wait until next year," Dickerson told The Center Square. "They should increase the debt limit in the lame duck, along with real spending reforms to address the underlying fiscal problem."

Lawmakers face a related deadline before then. The continuing resolution signed in September, Public Law 119-103, funds the government through Dec. 11.

David Ditch, a federal budget expert at the Cato Institute, told The Center Square that the ceiling vote has long been Congress's only real moment for restraint.

"For several decades, votes on the debt limit have been the only time when Congress is willing to vote for meaningful deficit reduction," he said. "At minimum, they should use the next debt limit vote as an opportunity to cut expected deficits in half by reducing the growth of spending. This would ease inflationary and interest rate pressures that are punishing family budgets across America."

Treasury did not respond to questions by publication. The department was closed Wednesday for the Veterans Day federal holiday.

Lawmakers have suspended the debt limit rather than raising it by a set amount eight times since the beginning of 2013, according to the Committee for a Responsible Federal Budget. The group said the current $41.1 trillion ceiling was set in July 2025, when the One Big Beautiful Bill Act raised the limit by $5 trillion.