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US Federal Debt and Interest Costs Projected to Rise Sharply Over Next Decade

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The Rising Cost of U.S. Debt: A Decade of Fiscal Pressure

Multiple government and academic sources project a significant increase in U.S. federal debt and associated interest costs over the coming decade, driven by persistent budget deficits, rising interest rates, and demographic pressures. The Congressional Budget Office (CBO), the Penn Wharton Budget Model (PWBM), and the Committee for a Responsible Federal Budget (CRFB) have all issued reports detailing the trajectory of U.S. fiscal obligations.

Current Debt Levels and Immediate Borrowing

The U.S. national debt is currently reported at approximately $38 trillion, or roughly 100% of Gross Domestic Product (GDP) , according to the CBO. For the first four months of fiscal year 2026 (October through January), the federal government borrowed $696 billion, including $94 billion in January. The CBO report indicates that the government averaged $43.5 billion in borrowing per week during this period.

Maya MacGuineas, president of the CRFB, has stated that if borrowing continues at this rate, it could result in another fiscal year with a deficit of $1.8 trillion or more.

Projections for Debt and Interest Costs

Debt-to-GDP Ratio

The CBO projects that publicly held federal debt will exceed the post-World War II record of 106% of GDP by fiscal year 2030, reaching 120% of GDP by 2036. The Penn Wharton Budget Model (PWBM) identifies a debt-to-GDP ratio above 210% as the "solvency limit" —a point at which, according to the model, financing interest payments through labor income taxes becomes infeasible. Under different economic growth scenarios, the PWBM projects the U.S. could reach this threshold in 19 to 25 years. Based on historical health cost growth trends, a separate PWBM analysis estimates a median "closure year" between 2045 and 2051.

Interest Costs

Annual interest payments on the federal debt are a primary driver of rising deficits. The CBO projects net interest costs will more than double, from their current level to $2.1 trillion by 2036. Data from the Treasury Department shows interest expenses reached $427 billion by January 31. For fiscal year 2025, net interest payments exceeded $1 trillion for the first time, representing approximately 18% of annual revenue.

The average interest rate on outstanding Treasury notes is reported at 3.23%, while the CBO projects the average rate paid by the Treasury will reach 3.9% by 2036. According to the CRFB, if Treasury yields remain at recent peaks, interest costs could absorb 30% of federal revenues by 2036.

Recent Bond Market Conditions

Treasury yields have risen in recent months. Prior to the Memorial Day weekend, the 30-year bond yield reached 5.2%, a 19-year high, and the 10-year note reached 4.7%. As of recent reports, yields were at 4.8% for 30-year Treasuries and 4.2% for 10-year Treasuries. The CBO's baseline forecast assumes average yields of 4.65% for the 30-year and 4.15% for the 10-year through 2036. Observers have noted weaker bond auctions with tepid demand, which can contribute to higher yields.

Contributing Factors

Reports cite multiple factors contributing to the rising debt and interest costs:

  • Federal Spending and Deficits: The CBO reports that increased government spending is a factor in high deficits. The PAYGO law, designed to require offsets for new spending, has been frequently bypassed by Congress.
  • Federal Reserve Policy: The yield on Treasury bonds has increased following interest rate hikes by the Federal Reserve.
  • Demographic Pressures: The PWBM notes that aging demographics are a key driver of fiscal imbalance. PWBM data shows that in April, retirees (65+) received $2.7 trillion (38.6% of federal outlays) , while children and young adults (under 26) received $449 billion (10.3%) .
  • Legislative Changes: The "One Big Beautiful Bill Act," a Republican budget reconciliation bill, reduced corporate income taxes collected by $22 billion due to increased tax deductions for certain corporate investments.
  • Trust Fund Depletion: The PWBM projects the Social Security trust fund for old-age benefits will be depleted around 2032, after which only about 83% of scheduled benefits could be paid. The expected insolvency of Social Security and Medicare trust funds by 2034 is cited as a potential catalyst for reform.

Potential Risks and Counterpoints

  • Debt Spiral Risk: The CRFB has warned that if the average interest rate on federal debt surpasses nominal economic growth, it could initiate a "debt spiral." The group also noted that if the Supreme Court rules against the legality of certain tariffs, and if expiring tax provisions are extended, deficits could reach $3.8 trillion and debt could grow to 131% of GDP by 2036.
  • Economic Growth: Some lawmakers consider robust economic growth as an alternative to austerity. The CBO estimates that advances in artificial intelligence (AI) could modestly boost total factor productivity by 0.1 percentage point annually, leading to a 1 percentage point increase in output by 2036.
  • Market Sentiment: Despite rising debt levels, reports indicate that bond yields have not shown signs of panic, and many investors and economists remain comfortable with the U.S. fiscal situation. Economists suggest potential management tools include "financial repression" —allowing inflation to erode the real value of debt—or quantitative easing.
  • International Context: The PWBM notes that Japan's debt exceeds 200% of GDP, but Japan relies more heavily on domestic bondholders. Japanese investors own about $1 trillion in U.S. Treasuries; however, rising Japanese government bond yields may lead to repatriation of funds, potentially reducing demand for U.S. debt.

Statements from Analysts

Kent Smetters, director of the PWBM, has stated that the U.S. could experience a significant market reaction similar to the 2022 UK bond crisis ("Liz Truss moment") within the next five to ten years.

Ray Dalio, founder of Bridgewater Associates, has expressed concerns about the U.S. spending significantly more than it collects, noting that debt service payments are "squeezing away buying power."

The CRFB has recommended deficit reduction to help lower the debt burden and reduce the risk of a fiscal crisis.