Key Takeaways:
- The national debt has passed $39 trillion, and relative to the size of the economy it is higher than at any point in history except the years right after World War II.
- As debt grows, so does the interest the government pays, leaving less money for priorities like education, infrastructure, healthcare, and retirement programs.
- Increased federal borrowing can push interest rates up, and in the article’s example a move from 6% to 7% on a $300,000 mortgage adds roughly $57,000 over 30 years.
- Student loan rates reset annually based on government borrowing costs, and higher rates can also make small business financing harder to secure.
- Social Security already faces a funding gap, and the longer Congress waits to act, the larger the eventual fix may need to be.
How the National Debt Reaches Your Household Budget
The national debt has passed $39 trillion. This is a number so large that it’s hard to imagine what it means for the average American, but it’s easier to understand when you look at common expenses like mortgages, retirement income, and student loans.
Compared to the size of our economy, the federal debt is higher than at any point in history except for the years right after World War II. And if federal spending continues to outpace revenue, it will affect the wallets of Americans across generations in ways that won’t be so hard to imagine anymore.
The Widespread Effect of National Debt
The national debt grows when the federal government spends more than it takes in and borrows to cover the difference. As that debt increases, so does the interest we pay. This leaves less money available for priorities like education, infrastructure, healthcare, and retirement programs.
Increased government borrowing also tends to push interest rates up, making it more expensive for families and businesses to secure loans. While federal debt isn’t the only factor affecting rates, it can contribute to higher costs throughout the economy.
Mortgages
Higher interest rates can make home ownership more expensive. Even a modest increase in mortgage rates can significantly increase monthly payments and add thousands to the total cost of buying a home. For example, moving to a 7% interest rate from a 6% interest rate on a $300,000 mortgage can add roughly $57,000 over 30 years.
Student Loans
Federal student loan rates are reset every year based on what it costs the government to borrow. Higher borrowing costs mean higher rates and larger monthly payments for new borrowers. This, of course, affects college students with loans and parents who take out loans for their college kids.
Social Security
Social Security already faces its own funding gap, and rising federal debt could make it more challenging for Congress to address it. The longer Congress waits to make legislative changes, the bigger the fix will need to be. This could mean larger tax increases or deeper benefit cuts, or both.
Small Business Loans
Small business owners depend on affordable financing. Higher borrowing costs can make it more difficult to open a business, hire employees, purchase equipment, and expand operations. Fewer businesses grow. Fewer jobs are created. And consumers may see prices rise as businesses pass costs along.
Why Congress Hasn’t Solved the Problem
Reducing the national debt requires difficult and often challenging decisions about federal spending, taxes, and long-term budget priorities.
In March of this year, the U.S. House rejected a proposed constitutional amendment that would have capped annual federal spending to the average revenue collected over the previous three years, with exceptions for national emergencies. It failed 211 to 207.
Lawmakers in favor of the resolution viewed it as a way to support greater spending discipline, but critics argued that it could put programs like Medicare and Social Security at risk.
The Cost of Waiting
In order to fix America’s debt problem, spending has to be trimmed, revenue has to go up, or there needs to be a mix of both. Lawmakers need to put forth policy measures that will support economic growth. These likely won’t be politically popular or win votes.
But continuing to avoid the growing debt carries costs of its own. For Americans, those costs could show up in higher loan payments, tighter household budgets, and greater uncertainty about retirement benefits.
