Interest on the National Debt Now Costs More Than Defense

The US government spent more servicing its debt than it spent on defense in fiscal 2026. Treasury Department data released Friday, October 17, 2026, put net interest costs at $1.05 trillion for the year through September, up more than 8% from $970 billion in fiscal 2025.

Gross interest paid on public debt rose $144 billion to a record $1.36 trillion. The average rate the government paid on marketable Treasuries was 3.52% at the end of September, more than double the 1.47% rate five years earlier.

That combination — a larger debt stock and higher rates — has moved interest into third place among federal expenditures, behind Social Security and Medicare and ahead of defense and Medicaid. Net interest is also growing faster than total spending, revenue and GDP, meaning it consumes a rising share of every dollar the government takes in.

The wider budget picture deteriorated alongside it. The federal deficit widened to $1.99 trillion, 12% worse than the $1.78 trillion gap in fiscal 2025. That is the third-largest annual deficit in US history after 2020 and 2021, and the 25th consecutive year the government ended in the red. Revenue rose 3% to $5.4 trillion; spending rose 6% to $7.4 trillion.

The Peter G. Peterson Foundation, a research group, projects interest costs will reach 3.2% of GDP, which would surpass the record set in 1991. One key measure of the debt exceeds $32 trillion, about $10 trillion more than five years ago.

The story here is not a sudden crisis. It is a slow, compounding drain. Interest is not a program that can be trimmed by policy choice in the current year; it is the price of borrowing already done. As it grows faster than the economy, it narrows the space for everything else and leaves the budget more exposed to a downturn or a spike in rates.

A debt ceiling fight is also looming in 2027. President Trump and some Democrats have both called for eliminating the ceiling, an unusual alignment that reflects how the mechanics of borrowing have become a recurring source of friction.

How much of the increase comes from higher rates versus the larger debt stock is not settled by the annual figures alone. Nor is whether interest will keep outpacing GDP growth in fiscal 2027. What the fiscal 2026 data establish is the direction: past borrowing is now one of the largest claims on present revenue.