When I came out of undergrad in the late ’80s Wall Street was in turmoil. Black Monday wreaked havoc on firms across the nation and it appeared we were headed for recession. We got that recession in early 1990s, but it was brief.

Through it all my friends and I knew one thing: there was no place else we’d rather be. We were in the thick of everything financial. Even though there were bumps in the road, the ride was worth it.

We’d taken out student loans, worked our tails off while in college, earned degrees from good schools. And there we were… reaching for the brass ring, watching our earnings move higher. Our friends in other industries, like technology or healthcare or energy, were all experiencing the same thing.

It was all part of the plan. We maxed out our student loans as leverage to improve our professional standing with MBAs and the like so we could move up the food chain faster and earn more money more quickly.

Why did this seem like a good idea?

Because the entire world told us that it was!

It didn’t matter where you turned. The hard and fast rule was there was a direct, positive correlation between education and income. The more you learned, the more you earned. If you had to finance your education, so be it. Whatever you could do to learn more, you did. The payoff was practically assured.

Things are different today…


Higher Education No Longer Automatically
Means Higher Pay

With the exception of a few pockets of growth in places like software engineering or actuarial sciences, the overwhelming trend in earnings – and living standards – of recent college grads is lower.

Students fresh out of college, carrying mortgage-size student loans, no longer have as much leverage with which to demand more pay.

Since 2000, the mean income of college grads aged 25-34, has dropped – dropped – from $74,767 to $64,060 per year.

This drop in income wasn’t straight down. It started with a decline in the early 2000s, which was understandable with the recession and 9/11. Then, for two short years – 2005 and 2006 – income for this group turned around. After 2006, the trend resumed its slide down the slope.

Of course, all the while, the baggage this group carries has become more burdensome thanks to rising college costs, which we highlighted in the January issue of Boom & Bust (we also presented subscribers with a way to profit from this trend).

The Trickle Down Effect

This high-debt-lower-pay problem no longer just stops with the college grad. It’s filtering into the rest of the economy.

Think about it. If indebted, fresh-out-of-college graduates use their reduced earnings to pay their student loans, how will they afford to buy a home?

A colleague of ours pays almost $1,200 every month to repay his student loan. He’s 30 years old. With what’s left of his pay, he can’t afford a mortgage. He can barely afford a roadworthy car. And he’s certainly not the only young American in that position.

Without this up and coming group buying homes, the housing market will stay in the doldrums even longer.

If this group can’t get the basics in place to start a family, they won’t be on track to grow their spending in line with family formation as their parents and grand parents did before them.

This could have a disastrous effect on the broader economy. Especially because we’re all counting on this group to buy enough stuff to bolster activity and employment AND pay the taxes necessary for all of the public spending and entitlements that governments back.

So What Can We Do?

Besides avoiding the housing market for a while yet, make sure your kids, or nieces and nephews, or grandkids spend less on their education while gaining the skills for a position that caters to the growing demands of an aging Baby Boomer generation.

The healthcare industry is a good place to start. With 10,000 Baby Boomers retiring every day for the next 19 years, healthcare is in store for a massive boom.

Plus, many healthcare jobs only require certificate programs or 2-year degrees, so the return on investment in that education is better. Students accumulate less debt and enjoy better job security and higher wages.

Now that’s a win-win situation we can live with.


P.S. The student loan bubble inflating right now will be the next one to burst. The increasing costs of education and the consistent employment pressures are creating a perfect storm. We have positioned Boom & Bust subscribers to take advantage when this storm breaks ahead. Don’t miss this opportunity. Click here for instructions on how to access the details of play.

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Rodney Johnson
Rodney Johnson works closely with Harry Dent to study how people spend their money as they go through predictable stages of life, how that spending drives our economy and how you can use this information to invest successfully in any market. Rodney began his career in financial services on Wall Street in the 1980s with Thomson McKinnon and then Prudential Securities. He started working on projects with Harry in the mid-1990s. He’s a regular guest on several radio programs such as America’s Wealth Management, Savvy Investor Radio, and has been featured on CNBC, Fox News and Fox Business’s “America’s Nightly Scorecard, where he discusses economic trends ranging from the price of oil to the direction of the U.S. economy. He holds degrees from Georgetown University and Southern Methodist University.