Interest on US Debt Hits $1.14 Trillion in FY2026, More Than Defence or Medicare, With the Debt Limit $800 Billion Away

The federal government spent $1.143 trillion on net interest in fiscal 2026, according to the Congressional Budget Office’s monthly review of 8 October. That’s $115 billion, or 11%, more than in fiscal 2025. It’s more than the Defense Department spent on the military, $916 billion, and more than Medicare, $1.069 trillion. Only Social Security, at $1.654 trillion, cost more.

Interest now takes about 15 cents of every federal dollar spent, and about 21 cents of every dollar collected.

The year in numbers

The deficit for fiscal 2026 was about $1.99 trillion, $218 billion more than the year before. Receipts rose 3% to $5.403 trillion. Outlays rose 6% to $7.396 trillion. At about 6.2% of GDP, the Committee for a Responsible Federal Budget calls it the largest deficit outside a war or recession.

Treasury’s Debt to the Penny data show total public debt at $40.17 trillion on 30 September, up $2.53 trillion over the year. By 8 October it was $40.31 trillion. Debt held by the public, the part that matters most to markets, was $32.45 trillion.

The average interest rate on all of it was 3.53% at the end of September. That’s low by historical standards, but much higher than in 2021, and it rises as cheap debt matures and is refinanced. With the Federal Reserve raising rates in September, as covered in our economy post, the refinancing happens at higher rates.

What higher rates would do

CBO published alternative scenarios on the same day. In its baseline, debt held by the public reaches 120.2% of GDP in 2036. If interest rates ran 1.5 percentage points higher than CBO projects, debt would reach 133.1% and deficits over 2026 to 2036 would be $6 trillion larger, $4.9 trillion of it extra interest. Even half a point higher adds $1.9 trillion.

The long-term picture is in our post on CBO’s 30-year outlook, where interest overtakes defence for good.

The debt limit returns

The July 2025 tax and spending law raised the debt limit by $5 trillion, to $41.1 trillion. The Congressional Research Service’s September update puts debt subject to the limit at about $40 trillion, roughly $1.1 trillion below the ceiling. Total debt is now about $800 billion away.

When it’s reached, Treasury uses extraordinary measures: suspending new investments in some federal employee retirement funds, delaying debt sales, and swapping debt that counts toward the limit for debt that doesn’t. CRS notes these have historically bought “a few weeks to several months.” The Bipartisan Policy Center expects the limit to be reached between late winter and mid-summer 2027, with measures and cash lasting another six to nine months.

That puts the next debt limit fight in the new Congress, after the midterms. We compared the US limit with other countries’ fiscal rules in an earlier post.

Why it matters

Interest is the one federal cost Congress doesn’t vote on each year. It follows from past deficits and current rates. As it grows, it crowds out everything else in the budget that Congress does control, and it makes the debt limit a bigger risk: a missed interest payment, even briefly, would raise the government’s borrowing costs on $32 trillion.