Washington, D.C. — A rising federal debt-to-GDP ratio is making it more expensive for Americans to buy a home, finance a car, pay off student loans, and grow a small business, according to a new analysis from the Center for American Progress. For a household carrying a mortgage, a new auto loan, and an undergraduate student loan, that translates to an estimated $4,500 in additional borrowing costs each year.
Federal debt held by the public reached roughly 99 percent of gross domestic product in the first quarter of 2026, its highest quarterly level since World War II outside of the COVID-19 pandemic recession. The nation’s increase in the debt-to-GDP ratio since 2001 has pushed long-term borrowing rates roughly 1.36 percentage points higher than they otherwise would be.
“Americans are experiencing the consequences of rising federal debt in their monthly bills,” said Cristina Tello-Trillo, chief economist at CAP and author of the analysis. “When persistent deficits push borrowing costs higher, families pay more for a home, a car, or an education, while businesses face higher costs to invest and grow. Stabilizing the debt relative to the size of the economy is essential to both growth and cost of living.”
The analysis finds:
- Mortgage borrowers face some of the largest costs due to the federal debt. On the average new mortgage of $371,000, a 1.36 percentage-point decrease in the interest rate would save a borrower about $325 per month and roughly $116,900 over the life of a 30-year mortgage.
- Car and student loan borrowers also pay more. A 1.36 percentage-point reduction in the interest rate would save about $1,660 over a five-year new-car loan and about $2,576 over the standard 10-year repayment period for a typical undergraduate federal student loan.
- Younger Americans are disproportionately exposed to higher rates. People ages 18 to 49 accounted for 67 percent of the value of newly originated mortgages and 61 percent of new auto loans in the second quarter of 2026, meaning they are more likely to take on debt at today’s higher prevailing rates. Many older homeowners, meanwhile, remain locked into mortgages secured before rates increased sharply.
- Small businesses face higher borrowing costs as well. For the average Small Business Administration 7(a) loan, the analysis estimates that a 1.36 percentage-point reduction in rates could lower payments by about $327 per month, or roughly $39,190 over a standard 10-year term.
- A rising debt-to-GDP ratio can weigh on wages over time. Previous CAP analysis estimates that continued growth in the debt ratio could leave average annual wages $4,200 lower by 2055 than they would be if the debt-to-GDP ratio were stabilized.
Read the analysis: “How Federal Debt Puts a Damper on Your Wallet” by Cristina Tello-Trillo
For more information on this topic or to speak with an expert, please contact Christian Unkenholz at [email protected].