Unlocked is a series focused on explaining U.S. federal government systems, structures, and processes. This public debt explainer is part of that series, which is produced by The Journalist’s Resource and the Shorenstein Center on Media, Politics and Public Policy, where JR is housed.

Last fiscal year, the federal government for the first time paid over $1 trillion in interest on outstanding debt accumulated throughout the nation’s existence.

Gross interest payments are again expected to top $1 trillion for fiscal year 2025, according to projections from the U.S. Bureau of Economic Analysis.

(The federal fiscal year runs from Oct. 1 to Sept. 30 the following year.)

In May, credit rater Moody’s downgraded U.S. debt one notch from its highest level, citing rising debt and interest payments, making it the last major credit rating agency to downgrade the country’s sovereign debt.

While many economists agree that the size of the national debt, over $36 trillion, and interest costs could become a problem — potentially making it difficult for the government to cover yearly budget deficits — whether and when the national debt becomes a crisis is difficult to determine.

“There’s a decent chance that in my lifetime, this will not become a huge issue,” said Ben Harris, director of economic studies at the Brookings Institution, during an event on the national debt in Miami last year. “There’s also a decent chance that in the next two or three years it will blow up our whole economy.”

For journalists covering federal spending, there are straightforward ways to help audiences understand why the national debt should matter to them.

Here, we’ll cover what journalists need to know to offer comprehensive and nuanced reporting on the national debt:

• What is debt?

• How does the federal government borrow money?

• Who lends the federal government money?

• Are foreign debt holders a threat to the U.S. economy?

• What do budget deficits have to do with the national debt?

• What are Treasury securities and what types are there?

• How are interest rates on federal debt determined?

• Why has the national debt risen in recent years?

• How can the federal government reduce the deficit?

• How can journalists make public debt concepts accessible to their audiences?

What is debt?

Debt is money owed to one party by another. The lender fronts money to the borrower. In exchange for the borrower using their money, the lender receives interest. Interest represents the lender’s compensation for not being able to otherwise use the money.

The federal government, specifically the U.S. Department of the Treasury, borrows money through financial instruments called securities. For example, a lender might purchase a type of Treasury security called a bond. After a set length of time, the lender is entitled to their money back, and will have accrued regular interest payments over that time.

The deficit is the federal budget shortfall each year — it’s the difference between spending and revenue. The federal government takes on debt to make up for those deficits, and that debt accumulates over time. The last time the federal government did not have a budget deficit was fiscal year 2001.

“It’s like the running total on the nation’s tab,” said Karen Dynan, an economist at Harvard University, during a recent episode of the Shorenstein Center’s Unlocked podcast.

The individual or entity that purchases the security is said to “hold” the debt the security represents. Someone who purchases $100 in Treasury bonds holds $100 worth of U.S. debt.

When adjusting for gains from government investments, the net interest for fiscal year 2024 clocked in at $949 billion, according to the Congressional Budget Office.

The Bureau of the Fiscal Service, established under the Treasury Department in 2012, handles federal payments and collections, and manages public debt, serving as banker and accountant. The bureau fulfills the Constitutional requirement that the government provide a “regular statement and account of the receipts and expenditures of all public money.”

How does the federal government borrow money?

When people talk about the total national debt — about $36.2 trillion as of June 2025 — they’re referring to two types of debt.

First, there’s public debt. This is debt the federal government owes to any entity other than its own federal government agencies. This includes individuals, companies, the Federal Reserve, and state and local governments or foreign governments, according to a December 2022 report from the Congressional Research Service. The U.S. owes about $28.9 trillion in public debt.

Next, there’s intragovernmental debt, money that one part of the federal government owes to another. This is debt held in federal agency trust funds. Agencies that collect revenue may add surplus revenue to their trust funds.

For example, social security revenue is collected through payroll taxes. When there is a surplus of revenue, the Social Security Administration uses the surplus to buy Treasury securities through its Old-Age and Survivors Insurance Trust Fund.

This trust fund is the largest single holder of intragovernmental debt. When people talk about the uncertain future of social security, they’re likely referring to the solvency of this trust fund.

Current intragovernmental debt amounts to about $7.3 trillion. The Federal Old-Age and Survivors Insurance Trust Fund accounts for about $2.5 trillion of that total, according to Treasury Department data. Costs for things like benefit payments and administrative expenses have been greater than the fund’s revenue since 2021, and the fund’s assets have declined by nearly $215 million.

Because intragovernmental debt is one part of the government lending to another, this type of debt has “no net effect on the government’s overall finances,” according to the nonprofit Committee for a Responsible Federal Budget.

For this reason, economists focus on public debt as their main area of analysis and potential concern. Most national debt growth in recent years has come from public debt.

In June 2015, there was $5.1 trillion in intragovernmental debt versus $13.1 trillion in public debt, according to Treasury Department data. Public debt was about 2.5 times larger than intragovernmental debt.

Today, public debt is four times larger than intragovernmental debt.

Who lends the federal government money?

Private investors in the U.S. are the largest group of holders of public debt, with about $15.6 trillion worth. The Federal Reserve Bank of St. Louis offers a quarterly breakdown of the top categories of private investors, which includes households and nonprofits, insurance companies, pension funds and money market and mutual funds.

The Federal Reserve is the largest single holder of public debt, with Federal Reserve banks holding about $4.5 trillion worth. As the nation’s central banking system, the Federal Reserve is separate from federal agencies and the Treasury securities it purchases count toward public debt and are bought independent of federal spending and borrowing decisions.

Another $9 trillion — 31% — of public debt is held by foreign governments or foreign private investors. This is down from about 50% in 2015, according to a recent analysis by Nellie Liang, a senior fellow in economic studies at the Brookings Institution.

As of March 2025, the top five countries where private investors and governments hold the most U.S. debt are Japan, the United Kingdom, China, the Cayman Islands and Canada, according to Treasury Department data. About 44% of the total foreign debt is held by governments, while about 56% is held by private investors, according to a 2025 report from the Congressional Research Service.

Are foreign debt holders a threat to the U.S. economy?

It’s unlikely that foreign debt holders pose a major threat to the U.S. economy, for several reasons.

First, Treasury securities have maturity dates — more on that below — and investors stand to forfeit interest gains if they cash in their debt holdings before maturity.

The global economy is also highly interconnected, and U.S. consumers are a major driving force. U.S. consumers purchased $22.5 trillion worth of goods and services in 2023, accounting for 29% of global spending, according to World Bank data.

The next biggest spenders were consumers in China, at $9.9 trillion. Deliberately attempting to destabilize the U.S. economy by offloading U.S. debt would hurt U.S. consumers, which, in turn, would hurt global demand for goods and services.

It’s also unlikely a foreign government would be able to disrupt the U.S. economy even if it wanted to, given the declining size of foreign U.S. debt holdings and the relatively small amount any individual government holds. For example, Chinese government and investor holdings account for about 2.5% of U.S. public debt.

Finally, many investors use U.S. debt as collateral in financial transactions. Because U.S. debt is seen as a safe bet — the federal government has almost always made its payments on time — investors use Treasury securities as collateral for other investments, agreeing to forfeit those U.S. debt securities if they default.

But, if foreign investors and governments lose faith that the U.S. will continue making its interest payments on time, that could squeeze the foreign market for Treasury securities, potentially making that borrowing market expensive or inaccessible.

That’s true for all public debt holders, particularly as yearly interest payments top $1 trillion and make up an increasingly large share of federal spending.

“The bigger issue is if there is a broad-based loss of confidence, all of our debt holders basically lose confidence in our nation’s ability to manage our finances, then you get sort of a buyer’s strike,” Dynan said. ‘They pull back, and you’ll see interest rates spike.”

U.S. policy choices pose a bigger risk than foreign holders of U.S. debt, argues economist Judith Arnal, an associate senior research fellow at the Center for European Policy Studies, a think tank.

“Poor fiscal governance, combined with a high public debt ratio, large public deficits projected for the coming years, an economic strategy reliant on expansionary fiscal policies, and trade policies centered on tariffs, risks increasing the US’ cost of borrowing in the short term,” Arnal writes in a January 2025 analysis in the journal Global Policy. “Surprisingly, these tensions would not be inflicted by any geopolitical adversary but rather by the U.S.’ own economic policies. If the United States continues down this path of fiscal imbalances, a fiscal crisis could arise in the medium term, with significant implications for the international financial system.”

What do budget deficits have to do with the national debt?

Federal spending, sometimes referred to as “outlays,” totaled $6.75 trillion in fiscal year 2024, according to the CBO. Outlays are mostly made up of mandatory and discretionary spending, with interest payments making up the rest.

Mandatory spending includes payments the government is required to make by law. The three biggest mandatory spending programs are Social Security, Medicare and Medicaid.

Mandatory spending was $4.4 trillion of the federal budget for fiscal year 2024.

Discretionary spending is spending that happens at the discretion of federal lawmakers — spending that requires approval from Congress every year. This includes defense spending, infrastructure projects, environmental protection, border security and law enforcement, among other programs.

Most federal government revenue has historically come from personal income taxes, payroll taxes and corporate income taxes. Those three categories of taxes accounted for 95% of the $4.9 trillion in revenue the government collected during fiscal year 2024, according to the CBO.

The deficit is the difference between federal outlays and the revenue the Treasury department collects for that year. To cover budget deficits, the Treasury Department issues securities — it borrows money.

Annually, the deficit is running at about 6% of gross domestic product, which is the value of all goods and services produced in the U.S.

“That’s a big number by historical standards,” Dynan said during the Unlocked podcast. “It’s about double the level that we’ve seen over the last 50 years. Wars, bad recessions, pandemics — we’ll see that go up, but not on a sustained basis.”

The CBO estimates that budget legislation under consideration in Congress, the “One Big Beautiful Bill Act,” could increase deficits by a total of $2.4 trillion from 2025 to 2034.

“Budget deficits are the principal contributor to debt held by the public,” according to the December 2022 Congressional Research Service report.

The total deficit for fiscal year 2024 was $1.8 trillion, according to the CBO.

The deficit in May 2025 was $314 billion, while the deficit totaled $1.4 trillion for the first eight months of fiscal year 2025, according to a June CBO report.

What are Treasury securities and what types of securities are there?

There are a variety of Treasury securities. They’re all forms of public debt. The main difference among them is how long it takes for each to mature. When a security matures, the debt holder is entitled to be repaid in full, with due interest.

Treasury Department interest payments come due every day, usually under $1 billion but sometimes well over $1 billion. Interest payments on Treasury securities are made every six months, either when the security matures and it’s redeemed or when the security holder redeems them early. There are penalties for early redemption, however — for example, a penalty of three months’ worth of interest for certain bonds cashed in within five years of when they were issued.

The most common Treasury securities are:

• Bills: Short-term Treasury securities, typically maturing in one year or less.
• Notes: Medium-range maturities of two, three, five, seven or 10 years.
• Bonds: Long-term securities, maturing in either 20 or 30 years.

There are other types of Treasury securities, but those are the main three. The Treasury Department pays interest to bond and note holders every six months.

When securities mature, the security holder can cash them in or use the value to purchase a new security. Although bonds can be held past maturity, they don’t continue to earn interest, and inflation can erode their value.

Most Treasury securities can also be sold through brokers to other investors via secondary note and bond markets. More than $900 billion worth of Treasury securities are sold on average each day, according to the Securities Industry and Financial Markets Association, a nonprofit trade group.

How are interest rates on federal debt determined?

Interest rates are the cost of borrowing money. For $100 lent at 2% interest, the lender will get back $102. The lender earns $2.

Rates on Treasury securities are influenced by supply and demand, as well as target interest rates set by the Federal Reserve, which also affect rates on other types of lending throughout the economy, such as home and car loans. To tame inflation, the Federal Reserve increased target rates from near zero in early 2022 to over 5% by mid-2024, upping the cost of borrowing across the economy, including for the government.

Interest rates vary by the type of Treasury security being sold. The Treasury Department holds public auctions for securities, and interest rates are ultimately determined by the bids the department receives. Since 1998, the department has used a Dutch auction format, which is different from the traditional highest-bidder-wins auction format most people are familiar with. Here’s how it works:

Treasury regularly announces auction dates, including how much debt it wants to take on, along with maturity dates. For example, on June 24 the department offered $63 billion in bills set to mature in 17 weeks for an auction to take place the next day.

Public bidders, including domestic and foreign investors, declare the securities they want to purchase and their desired yield, which is the total return they’ll receive, and which includes interest returns.

Treasury then accepts bids until it has raised the capital it needs. The highest yield the department accepts is the price that all accepted bidders receive. If an investor sought $1,000 in government bonds at a 4.5% yield but the highest bid accepted had a 5% yield, the investor with the lower bid receives 5%.

Interest rates tend to rise when demand falls for Treasury securities, and rates fall when demand increases. When demand is weak, investors seek higher rates. When demand is strong, investors accept lower rates.

During times of economic downturn or uncertainty, investors have historically turned to Treasury securities as a safe place to park their money, with essentially guaranteed interest.

But investors also respond to everything else happening in the economy, including federal policy changes — such as major tariff announcements in early April, which pushed down returns on longer-term securities, as Robin Brooks, a senior fellow at Brookings, noted in May 2025.

“One explanation for this odd behavior could be that a risk premium is building, as markets increasingly question the United States’ exorbitant privilege, i.e. the ability to borrow at low interest rates even as deficits are large,” Brooks writes.

The overall interest payments the federal government makes depends on the size of the federal debt and the rates charged when the money was originally borrowed, for most but not all Treasury securities. The higher the rates, the higher the cost of borrowing and the more the federal government has to pay to borrow.

Last fiscal year, federal government debt servicing — another way to refer to interest paid — exceeded $1 trillion for the first time, more than double the interest paid a decade earlier. Through the first eight months of fiscal year 2025, debt servicing has cost $776 billion and could reach or exceed $1.3 trillion by the end of the year.

Why has the national debt risen in recent years?

In 1995, public debt totaled about $3.6 trillion. Public debt declined each year from 1998 to 2001, but has increased 9% per year on average since 2002. Today, at about $28.9 trillion, public debt is 800% larger than it was in the mid-1990s.

Demand for debt has risen in part because of specific global events and federal spending decisions. Here are a few examples.

Post 9/11

Following the attacks of Sept. 11, 2001, the federal government began wars in Iraq and Afghanistan. By the mid-2010s, the cost of those wars totaled between $4 trillion and $6 trillion, according to Harvard Kennedy School senior lecturer Linda Bilmes.

“The large sums borrowed to finance operations in Iraq and Afghanistan will also impose substantial long-term debt servicing costs,” Bilmes writes in a 2014 working paper. “The legacy of decisions taken during the Iraq and Afghanistan wars will dominate future federal budgets for decades to come.”

Through 2050, interest on debt issued to pay for those conflicts could reach $6.5 trillion, according to a 2020 estimate from the Costs of War project at Brown University.

The Great Recession

During the late 2000s, the Great Recession led to high unemployment and millions of home foreclosures. Though the recession itself lasted about a year and a half, the unemployment rate would not recover to pre-recession levels until September 2015.

Two pieces of legislation — the Economic Stimulus Act of 2008 and the American Recovery and Reinvestment Act of 2009 — increased government spending. This included investments to support the flailing financial sector, while taxes on individuals and households were also reduced.

Recessions tend to increase public debt when the federal government invests to support businesses, individuals claim unemployment and food benefits at higher rates, and the government tries to spur economic activity through public works projects, such as road building and maintenance.

Discretionary spending — which is not tied to benefits programs that automatically grow as more people become eligible during economic downturns — reached $1.2 trillion in 2009 during the height of the Great Recession, according to economist Miguel Faria-e-Castro in a 2018 report for the Federal Reserve Bank of St. Louis.

“Many economists argue that the government should increase discretionary spending in recessions to stimulate private consumption and investment, an idea dating back to John Maynard Keynes’s analysis of the Great Depression,” Faria-e-Castro writes.

And, as unemployment rises, tax revenue declines — less income means less tax paid.

Tax cuts and COVID

More recently, tax cuts and the COVID pandemic have led to reduced revenue and increased government spending. The 2017 Tax Cuts and Jobs Act reduced revenue from corporate taxes by 40%, according to a July 2024 working paper published by the National Bureau of Economic Research.

The 2017 tax cuts also reduced tax revenue from individuals and households, with people in most tax brackets seeing lowered tax rates, according to the Urban-Brookings Tax Policy Center.

“Based on evidence through 2019, we find that the TCJA clearly raised federal debt and increased after-tax incomes, disproportionately increasing incomes for the most affluent,” write the authors of a 2024 paper in the Journal of Economic Perspectives.

More broadly, tax cuts since 2000 under Presidents George Bush, Barack Obama and Donald Trump reduced federal revenue by more than $10 trillion, according to estimates by the nonprofit Institute on Taxation and Economic Policy.

In 2020, as the COVID pandemic shut down much of the American economy and led to a brief recession, federal lawmakers began passing legislation designed to provide financial relief to households and businesses and help cover various public health costs.

The six federal laws passed in 2020 and 2021 related to pandemic relief authorized roughly $5.4 trillion in spending, with $4.5 trillion in obligations committed by January 2023, according to the Government Accountability Office. The Infrastructure Investment and Jobs Act of 2021 authorized another $1.2 trillion in federal funding available for state and local transportation, energy and other infrastructure projects.

An aging population

Another reason for rising public debt is the nation’s aging population.

Thirty years ago, about 13% of people in the U.S. were over age 65. By 2023, the most recent year available from the U.S. Census Bureau, about 17% of the population was over age 65. That means around 20 million more people were potentially eligible for Social Security benefits and Medicare, based on their age, in 2023.

“The current tax code won’t generate nearly enough revenue to cover the rising projected costs, namely those related to retirement and health benefits promised to an aging population,” write economists Wendy Edelberg, Ben Harris and Louise Sheiner in a February 2025 Brookings commentary.

How can the federal government reduce the deficit?

The Congressional Budget Office occasionally publishes a report, “Options for Reducing the Deficit,” that offers a useful baseline for understanding steps the federal government can take to reduce the deficit.

As highlighted in the most recent report, published in December 2024, there are three categories of deficit reduction that Congress could pursue: changes to mandatory or discretionary spending, and increasing revenue.

Options for reducing mandatory spending include reducing social security benefits for high earners, capping federal spending on Medicaid and narrowing the eligibility for disability compensation for military veterans, according to the report.

Options for changes to discretionary spending include reducing the Department of Defense’s annual budget, reducing funding for diplomatic and consular programs administered by the U.S. Department of State, and reducing funding for state and local transportation projects and education programs.

Options for raising more revenue include increasing individual income taxes, imposing a new payroll tax, broadening the base of high earners who pay certain taxes, and taxing companies that emit greenhouse gases.

The last time the U.S. had a balanced budget and ran a surplus was during the 1990s and early 2000s, when the overall economy was humming and the size of the yearly deficit was relatively small compared with today’s deficits. At the time, federal lawmakers and President Bill Clinton increased revenue by raising taxes on high earners while reducing spending by limiting eligibility for social welfare programs, which also saw participation rates fall as people earned more money in the strong economy.

How can journalists make public debt concepts accessible to their audiences?

The rate of debt-to-GDP growth tends to accelerate around recessions and other crises, as it did from 2008 to 2012, and 2020 to 2024.

GDP is currently just under $30 trillion, with the public debt not far behind: The public debt was about 97% of GDP during the first quarter of 2025. Aside from a pandemic-related spike in 2020, the last time the ratio was that high was after World War II.

Lower revenues through years of federal tax cuts amid continued spending in the absence of war or recession could push the debt-to-GDP ratio to 117% by 2034, according to a January 2025 report from the CBO.

That means in about a decade the size of the national debt could be nearly one-fifth larger than the entire economy. While the public debt is historically high when compared with GDP, news audiences should know that economists vary widely in their concern over the debt-to-GDP ratio.

Former New York Times columnist Paul Krugman, a winner of the Nobel Prize in economics, wrote last year that countries experiencing debt crises typically borrowed in currencies other than their own, leaving them “vulnerable to a liquidity crunch when lenders for some reason ran for the exits and it couldn’t print cash to pay them off until the panic subsided.”

William Gale at Brookings noted in May 2019 that “sustained deficits and rising long-term debt make it harder to garner support for new policies or to address the next recession, war or emergency.”

Other economists suggest a frog-in-a-pot-of-water scenario, with rising federal debt manifesting “as a slow and steady erosion of our capital stock and national wealth that will ultimately impair living standards,” as Edelberg, Harris and Sheiner wrote earlier this year.

Echoing Arnal in Global Policy, they add that “a fiscal crisis is more likely to result from political missteps. These missteps include threats to default or efforts to undermine credibility of the Federal Reserve as well as enactment of policies that sharply increase deficits and thus raise the specter of strategic default.”

Servicing the debt means potentially less money for the discretionary spending priorities of Congress, whether that’s defense, transportation, scientific research, education or anything else, writes Brandeis University finance professor Daniel Bergstresser in June 2024 in Econofact, a nonpartisan publication out of The Fletcher School at Tufts University.

“Debt has risen to levels that are high by historical standards, but — until recently — that increase has coincided with very low interest rates that have kept the costs of debt service relatively low,” Bergstresser writes. “However, the high levels of debt mean that increases in interest rates like those that we have seen over the past two years will have a large impact on our country’s budget deficits that could require increases in taxes or reductions in spending.”