U.S. Public Debt Reaches $40 Trillion as Federal Interest Costs Surge to $3 Billion Daily

U.S. government debt has crossed $40 trillion, driven by rising annual budget deficits and mounting daily interest obligations on federal borrowing.

The Congressional Budget Office reported earlier this month that federal deficits have expanded to levels where the U.S. Treasury pays $3 billion a day in interest, amounting to $963 billion between October 2025 and July 2026.

Treasury data for August 18 shows the closing balance for the day on public debt outstanding totaled $40.04 trillion.

According to official records from the U.S. Department of the Treasury, debt held by the public accounts for roughly $31.2 trillion of the total balance, while intragovernmental holdings—including the Social Security trust funds and federal retirement accounts—hold the remaining $8.8 trillion. The total debt grew from $31.4 trillion in June 2023, when Congress suspended the statutory debt limit.

With the country’s debt-to-GDP ratio now north of 120% (a metric lenders will watch when analyzing the risk premium on loans to the U.S.), debt hawks are warning the public is already paying, and is only going to start feeling the squeeze more acutely.

Michael Peterson is the chairman and CEO of the Peterson Foundation, a nonpartisan organization dedicated to putting the U.S. on a more sustainable fiscal path. Speaking to Fortune as America hit the $40 trillion benchmark, Peterson explained that even if families don’t receive a “bill in the mail” for national debt, they’re already paying.

He explained: “When the U.S. borrows this much—and continues to borrow more and more—that drives up interest rates, which then increases household expenses because your mortgage goes up, your car loan, your credit card bills, and inflation more generally. So [we] may not get a bill at the end of the month for national debt, but [we] are paying that bill both in the form of taxes as well as an inflated level of expenses.”

Voter concern over federal borrowing has elevated the issue ahead of upcoming elections. In July, a Peterson Foundation study reported 94% of voters are more likely to support a candidate with a plan to address the debt, including 95% of Democrats, 92% of independents, and 94% of Republicans.

“To anyone who cares about America, about democracy and our future, in my view, this is already a crisis,” Peterson said, “because the level of fiscal mismanagement is tragic. It is burdening every household today, it’s laying more and more debt on our children and grandchildren, and that’s not how America got to be the great country that it is.”

Financial market indicators reflect the government’s sustained borrowing requirements. Treasury yields—the surest sign of confidence in U.S. borrowing and lending—are showing no signs of acute discomfort. At the time of writing, 30-year Treasuries sit above 5%, elevated (in part) by the uncertainty of Federal Reserve policy. 10-year treasuries are sitting above 4.6% for a similar confluence of reasons.

Nancy Vanden Houten, lead U.S. economist Oxford Economics, said in a recent note that “mandatory spending, including Social Security, Medicare, and interest on the debt, continue to see the most growth in spending. Fiscal year-to-date defense spending continues to creep higher as the war with Iran drags on; as of July, defense spending was up 5% y/y.”

A trade-off between two of those outlays seems to be on the books: The trust fund for social security is due to run dry in a little under eight years, and Medicare in a little under seven years, according to estimates by the Committee for a Responsible Federal Budget.

Long-term projections from the Congressional Budget Office indicate that net interest expenses will top $1.2 trillion annually within six years, outpacing annual expenditures for defense programs while primary deficits average $1.8 trillion per year under current law.

While “it’s hard to pinpoint an exact moment in time or an exact program that will be in jeopardy, if you care about government programs and what the government can do to help society, defend our country, make sure the most vulnerable are protected, and take care of the elderly, the first thing you should do is put us on a more stable fiscal path so that all those programs are less in jeopardy,” Peterson said.

However, any cross-party agreement to examine or target borrowing in order to reduce debt is yet to materialize. Peterson adds: “There’s a lack of urgency that concerns me. Just because the financial markets were OK yesterday doesn’t mean they’re gonna be OK tomorrow. To just continue to cross your fingers and hope that we can get away with a completely irresponsible level of budgeting is not a reasonable way to lead our country.”