The federal government’s annual deficit is bigger than it appears, thanks to some fuzzy accounting tied to President Biden’s proposed student loan forgiveness program.

According to the Congressional Budget Office (CBO), the federal deficit for fiscal year 2023 is estimated at $1.7 trillion, some $300 billion higher than the previous year.

“Actions related to the [Biden] Administration’s plan to cancel outstanding student loans for many borrowers resulted in largely offsetting changes to the deficit in 2022 and 2023,” the CBO said.

In September 2022, President Biden announced a $379 billion debt relief program to help 40 million Americans reduce their student loan balances.

The government included the entire cost of the program in the budget, even though no money was actually spent last year.

The catch?

The U.S. Supreme Court said Biden overstepped his authority and struck down the program, which prevented most of the money from being spent.

The Treasury probably should have updated last year’s deficit numbers but instead opted to record the changes as a $333 billion spending cut.

As The Wall Street Journal reported, the deficit for fiscal 2022 should have been recorded as $1 trillion; that would have made the 2023 deficit even bigger at $2 trillion.

While the difference is certainly large in absolute numbers, it’s still peanuts compared to Washington’s cumulative deficits over the past 20 years.

Addicted to deficit spending

Whether $1.7 trillion or $2 trillion, these numbers represent the U.S. deficit for just one year.

Federal debt held by the public hit $26.3 trillion in fiscal 2023, according to the CBO. When debt held by the public is added to federal trust funds and other government accounts, the deficit grows to about $33 trillion, according to the nonpartisan Peter G. Peterson Foundation.

The swelling of the deficit is due to myriad factors, including rising healthcare costs, an aging baby boomer generation, and increased government spending on various programs.

Washington’s response to Covid accelerated the size and growth of the deficit, sparking concerns about the government’s fiscal trajectory.

Rising interest rates have amplified these concerns and made it much more expensive to service the debt.

The high cost of borrowing

Servicing national debt now accounts for the largest increase in federal spending—bigger than the IRS or Social Security.

According to the CBO, the Treasury spent $711 billion on net interest payments in fiscal 2023, a massive increase from $177 billion the year before.

Washington’s debt payments are tied to Treasury yields, which have soared this year due to a combination of Fed policy and investors demanding higher premiums for longer-term bonds.

The 10-year Treasury yield recently hit 16-year highs, having risen over 50 basis points since the start of September.

If interest rates continue to rise, the Biden administration may have to adjust its budget plans, according to Treasury Secretary and former Fed Chair Janet Yellen.

“In general, the path of interest rates does matter to the deficit and the sustainability of fiscal policy,” Yellen said. “I’m sure that if the fiscal outlook worsens some, the budget will be adjusted.”