The Most And Least 'Creditworthy' Law Schools

What if law schools were assigned “credit ratings” like the ones that are given to corporations?

As we await the official start of rankings season, an intriguing new way of assessing law schools appears. What if law schools were assigned “credit ratings” in the manner of corporations? Today, student loan firm M7 Financial is giving ATL an exclusive preview of its novel take on the whole law school rating question. Rather than emphasizing the usual suspects such as LSAT scores or GPA, M7’s “Credit Ratings for Law Schools” considers only one metric: “the ability of an average student at each program to pay typical program-related student loan obligations upon graduation.”

M7 reviewed the statistics for nearly 50 JD programs in much the same way that credit rating agencies evaluate the financial strength of corporate debt offerings. They then issued a letter grade for each school.

M7 examined such criteria as the initial compensation of program graduates, their employment prospects, and estimated annual student loan obligations, in order to come up with the following scale:

A+: Student loan obligations are typically expected to be “modest” relative to initial career prospects
A: “very manageable”
A-: “manageable”
B: “demanding”
C: “very demanding”

Six law schools were rated “C". Of those, Pepperdine University’s law school had the worst credit statistics. Not only was its median private sector starting salary relatively low ($70,000) with weak employment prospects (58.20% employed nine months after graduation), but it also has a very high average debt load ($145,893) with a resulting very demanding estimated annual debt payment of $20,508.24. Thus the pre-tax income of the typical Pepperdine law graduate is only 3.41 times greater than his/her estimated annual debt payment.

The folks at M7 refer to this ratio as the “M7 Coverage Ratio,” which measures average starting compensation relative to estimated student loan payment obligations. The lower the ratio, the more burdensome debt level.

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The majority of the law schools were rated “B,” meaning a “demanding” debt burden.

Three law schools were rated “A" (there were no “A+" ratings). Of those, Stanford’s had the best credit statistics. Not only was its median private sector starting salary among the highest ($160,000) with excellent employment prospects (96.10% employed nine months after graduation), but it also has a relatively reasonable average debt load ($108,391), with a resulting estimated “very manageable” annual debt payment of $15,236.52. This provides Stanford Law School with an M7 Coverage Ratio of 10.5.

Brigham Young had the best credit statistics of all law schools M7 rated (Coverage Ratio of 12.69). Nevertheless, BYU’s employment prospects (78.20% employed nine months out) were “not commensurate” with an A rating and it was therefore rated “A-".

Interestingly Georgetown, Vanderbilt and Northwestern were all rated B. All three prominent law schools had credit statistics that could be perceived in the bottom part of the range for an A- rating but were rated “B” because of their employment prospects, which were “not commensurate with an A- rating.”

Regarding these ratings generally, a few important caveats are in order:

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  • As M7 notes, their methodology does not account for grants and scholarships — clearly a huge element of prospective debt burden.
  • These ratings look at private sector employment only. Law graduates looking to embark on government or public interest careers presumably have a completely distinct ROI analysis.
  • Judicial clerkships are unaccounted for in “private sector employment.”
  • This approach is rather “generous” to schools in only accounting for employed students’ incomes. We all are well aware of the brutal realities of the recent law grad employment market. These ratings will exclude the considerable swath of JDs who are unemployed.
  • The debt burden stats are as-reported to U.S. News. So they are undoubtedly “a number reported to U.S. News.” Season to taste!

Despite these qualifications and caveats (there are no perfect data sets out there on this subject), M7’s foray into law school credit ratings is certainly a welcome addition to the market information available to prospective students. Check out the full ratings report here.