WASHINGTON, July 11 — The figure that matters: $870 billion. That is what the Congressional Budget Office projects the United States will pay in net interest on the national debt in fiscal year 2024, a sum that already exceeds what the government spends on defense or Medicare. By the numbers, the trajectory is stark.
Net interest payments stood at $345 billion in fiscal year 2020, according to Treasury data. They climbed to $659 billion in fiscal year 2023.
The CBO’s projection for fiscal year 2024 puts interest at $870 billion — surpassing defense spending, which was $822 billion in fiscal year 2023, and Medicare, which was $839 billion that same year. By 2025, annual interest payments are expected to cross the $1 trillion threshold. Interest payments are now the fastest-growing major category of federal spending.
The bottom line: two forces are driving the surge — higher debt levels and higher interest rates. The debt held by the public stood at $26.9 trillion as of January 2024.
Intragovernmental holdings, which include obligations to trust funds like Social Security, added another $7.2 trillion.
Who Gets the Checks
The Treasury pays interest to a broad set of holders of U.S. debt. Foreign governments are major players: Japan held $1.1 trillion in U.S. debt as of January 2024, making it the largest foreign holder. China held $800 billion, ranking second.
The Federal Reserve, mutual funds, and individual investors also collect interest payments on the bonds they own. Investors will note that the composition of holders matters for market stability.
A shift in buying patterns by foreign governments or the Fed can influence Treasury yields and, by extension, the cost of future borrowing. The rising interest bill also crowds out other spending priorities, since interest is mandatory — the government cannot simply decide to stop paying bondholders.
The Mechanics Behind the Numbers
The jump from $345 billion in fiscal year 2020 to a projected $870 billion in fiscal year 2024 reflects a compound effect. Debt accumulated rapidly during the pandemic-era response, and then the Federal Reserve raised interest rates to combat inflation. Each new bond issued at higher rates locks in a higher cost of service for years to come.
Older, lower-rate debt matures and is refinanced at current market rates, steadily pushing the average interest rate on the total debt stock upward. The CBO’s projection that interest will exceed $1 trillion annually by 2025 is not a forecast of crisis — it is a forecast of math.
The debt held by the public is large, and the interest rate on that debt is no longer near zero. The combination produces a figure that now rivals the entire discretionary budget. For context, defense spending and Medicare are the two largest categories of federal outlay after Social Security and income security programs.
That interest payments are overtaking both signals a structural shift in how federal dollars are allocated. Every dollar paid in interest is a dollar not spent on soldiers, seniors, or infrastructure — or a dollar that must be borrowed, adding to the debt that generates the next interest payment.
What to Watch Next
The Treasury will release actual net interest figures for fiscal year 2024 after the books close on September 30. Investors will be watching whether the CBO’s $870 billion projection holds, or whether higher-for-longer interest rates push the number even higher. The January 2024 debt figures — $26.9 trillion held by the public, $7.2 trillion in intragovernmental holdings — provide the base.
The interest rate on new issuance will determine the slope of the curve. The administration of President Donald Trump and Vice President JD Vance faces a fiscal landscape where the fastest-growing expense is one that buys nothing — no tanks, no hospital beds, no roads.
It is simply the cost of having borrowed before. That cost is now on track to become the single largest line item in the federal budget within the next several years.
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