Previously, we talked about how to figure out if you’ll be content working as a lawyer. Even if you decide the answer’s yes, that’s only the first step. Now it’s time to consider another very important question: Can you actually afford to go to law school?
I know this isn’t necessarily a pleasant topic, but it’s an important one. In a world where the average law student takes out more $100,000 in loans and only half of recent grads are getting relevant jobs, you can’t just bury your head in the sand and assume everything will somehow work out. For far too many people, it doesn’t, and
law school ends up being a financial disaster. Don’t be one of those people! Take a serious look at the economics of law school, before you decide to attend.
Law School Economics
You’re probably going to ignore this, but just try to accept – even for a few minutes – that you’re not a unique and special snowflake. Chances are, your employment results are going to be typical of the profession, and of the school you attend. What this means varies by school, but here are a handful of universals to keep in mind:
• The mean salaries reported by law schools are essentially meaningless. Salary distributions are bimodal, and very few graduates make the mean, or average, salary. Some grads make BigLaw money, and almost everyone else makes a lot less than the stated mean.
• Even if you start out in BigLaw making the big bucks, odds are you won’t last long. Attrition rates are high, and about 80% of associates are gone within five years. Generally speaking, they take a pay cut when they move on.
• If you’re offered a first-year merit scholarship that requires you to maintain a certain GPA, be aware that not every scholarship recipient will necessarily be able to keep their scholarship.
• The bar passage rates at some law schools are shockingly low. Imagine you spent three years in law school, borrowed $100,000+ in loan money, and then failed the bar. Repeatedly. It happens. Don’t assume it can’t happen to you.
What Do You Need to Evaluate?
In a nutshell, you’ll want to evaluate the total cost of law school (actual cost to you + student loan interest + years of lost earnings while you’re in school) against the projected financial benefit. (If you’d like to get into the nitty-gritty, take a look at “Is a Law Degree a Good Investment Today?”)
Naturally, much of this is speculative, because it’s hard to predict in advance if you’ll do well in law school or enjoy being a lawyer. But in many cases, if you really sat down and ran the numbers, you’d have to conclude that law school is a terrible financial decision.
A 12-Step Program for Avoiding Financial Disaster
So, before you commit to a law school, do the following:
1. Find at the current price of attendance (tuition + living expenses) at the school(s) you’re considering.
2. Add at least 5% per year to account for tuition increases, and calculate the total cost of attendance for the program. That’s your sticker price.
3. Subtract any guaranteed financial aid grants you’ve been offered from the sticker price.
4. If your financial aid isn’t guaranteed after the first year, find the first-year curve and determine the likelihood you’ll be able to obtain the necessary GPA to keep your scholarship. If this likelihood is less than 100%, run two calculations: One with ongoing aid, and one without. Do not ignore the second option!
5. After you’ve calculated the sticker price minus any grants, think about how you’re going to pay the rest. Do you have family resources? Savings? What’s the likelihood you’ll be able to get a highly-paid summer job to defer costs? Subtract any relatively reliable sources of funding, leaving the amount you’ll have to borrow.
6. As you might have heard, grad students got pretty shafted in the recent federal student loan deal. No more subsidized loans, and a 6.8% interest rate. Since I know we’re probably reaching the limits of your math ability, just take the total amount you calculated you’ll need to borrow, and add a couple of percent to it to cover accumulated in-school interest. We’ll assume that’s the total debt load you’ll have when you graduate.
7. Go to this handy Loan Payment Calculator and enter your total debt load. (Note that you’re only allowed a certain amount of federal Direct loans per year, so above that you’ll need to borrow GradPLUS or private loans. These generally have higher interest rates.)
8. Hit Calculate. Look at the result. What annual salary do you need to make your loan payments without undue difficulty?
9. Find the most recent salary data for the school(s) you’re considering. What percentage of recent graduates make the salary you’ll need to pay back your loans comfortably? (If the school won’t give you this information, think about whether this might be a huge red flag.)
10. Consider your own goals. Do you even want the type of job you’ll need to pay back the amount you’re planning to borrow? If not, educate yourself about public interest loan repayment options, but be realistic. Don’t kid yourself that your loans will magically go away. (And remember that you’ll probably take a salary hit a few years after graduation, even if you start off in a high- paying firm job.)
11. Remind yourself that student loans generally can’t be discharged in bankruptcy.
12. Ask yourself again: Can I really afford to go to law school?
If, at the end of this process, you find yourself trying to rationalize matters (“I’m sure I’ll get a BigLaw job that I enjoy,” “I’ll just apply 50% of my income to loans, no biggie,” “I’ll easily get the GPA I need to keep my scholarship, so I don’t have to worry about what would happen if I don’t,” etc.) that’s a red flag.
Law school’s a huge financial commitment, particularly if you’re funding it with loans. Go into it with your eyes open.
If you can’t afford it, better to realize that now – before you find yourself shackled with hundreds of thousands of dollars in non-dischargeable debt!