The Rational Approach to Choosing Law School: an Economic Perspective
This piece, written by a TLS reader, explores the value of law school from a purely financial standpoint. While there are many reasons to pursue a legal education, those who are doing so primarily for the J.D.’s financial benefits had best give this article a careful read. Published May 2010, last updated June 2010.
It is an irony of the human condition that we are often least capable of clear and rational analysis when we are facing the most important and formative decisions of our lives. Understandably, we attach enormous weight to questions such as “what am I going to do for my career?” or “where do I want to be in three… five… fifteen years?” but paradoxically, given the obvious importance of these questions, these are often the decisions we approach most haphazardly. We are perfectly capable of doing a thorough cost/benefit analysis when choosing a brand of sugar at the grocery store, yet we rush unsystematically through decisions that will have infinitely more consequence. In this article I will discuss how to take a reasoned, rational, and scientific approach to one such decision: whether or not to attend law school.
Supply and Demand – Why a Detailed Analysis is Necessary in Today’s Climate
Taking such a measured approach is especially important in today’s economic climate. Before the financial crisis and the Great Recession, law school was generally considered, at worst, a sound personal financial decision: attorney salaries were high, legal careers were in abundant supply, and job security was assured. But in the post-bubble economy, while attorney salaries have remained relatively high, the supply of legal jobs has shrunk drastically1. Additionally, many already-established attorneys have lost their once stable jobs2. At the same time the legal job market has been shrinking, more law schools have been opening as enrollment has continued to increase.
Furthermore, law school tuition has continued its steady climb, reaching new heights every year3. The astronomically high price of a JD was understandable before the financial collapse; students were confident the increased earning potential of their degree would make it worth the debt accrued to obtain it. Even though this higher earning potential is no longer guaranteed, students today are pouring into law school in record numbers with applications increasing over 50% at some schools this year.4 This phenomenon is likely the result of many people who would not normally have attended law school seeking someplace to ride out the presently rough economic waters. While there is nothing necessarily wrong with this reasoning, those entering law school to escape a tough job market may well be taking themselves out of the frying pan by jumping into the fire.
Even though students entering law school today will not graduate for three years, the ramifications of the weak economy may well take some time to unfold. Law firms were unprepared for the downturn and most, as a result, found themselves with too many associates, too many summer associates, and not enough work to justify their expenses. This resulted in workforce cuts as firms struggled to shrink their bottom lines in order to reconcile them with smaller top lines. The corresponding lay-offs and hiring freezes have created a log-jam of recently minted associates and rising law school graduates who are all competing for jobs in an employment market that is not nearly as robust as it was two years ago. This mismatch of supply and demand will take some time to sort out and students entering law school today should be careful not to simply assume it will all be fixed by the time they graduate.
In summary, students entering law school today are competing with an ever greater number of peers for a declining number of legal positions and are paying more for their degree than ever before. This does not necessarily mean law school is a bad idea it just means someone considering law school should do a lot of research before making their decision, especially when evaluating whether it’s a financially sound one.
Two variables are key in deciding whether or not law school is a prudent choice for you: 1) what you want to do after law school, and 2) the quality/prestige of the law schools you gain admission to. It is critical that whatever goals you may have in attending law school can be accomplished with a JD from the school at which you would matriculate; assuming a median class rank. Median rank is an important assumption because it will guard you against unrealistic expectations. For some career paths the prestige of your alma mater coupled with this class rank will be almost singularly determinative of your success, for others they will matter very little if at all.
To simplify things, it is reasonable to group potential law school motivations under three categories: targeted, ideological, and pragmatic. I will discuss the targeted and ideological aims of some candidates first, but in these instances there is not much math to be done, as the substance of such a candidate’s decision will rest more upon their own self-knowledg. For the pragmatic candidate, however, the decision to attend law school can be a purely numbers-based endeavor; accordingly, I have laid out a methodology for doing the necessary calculations to make an intelligent decision.
Targeted and Ideological Goals
A law school applicant with a targeted goal will have a specific job or market lined up and will seek a JD as something akin to a certification; something that will legally enable them to do work they are already slated for. Such candidates may be going to law school so that they can take over their father’s (or mother’s) practice or they may have a specific locality in which they want to practice. To these candidates the prestige of the law school they attend and their class rank in school are not necessarily important (unless they want to enter an extremely competitive market such as New York or Washington D.C.) and they should focus on keeping the cost of their JD to a minimum. My advice to someone in this situation is to make sure you are happy with the position you have in mind and then to find the most local and inexpensive school you can (or pursue scholarships).
The ideological law school candidate perhaps wants to study law for purposes other than landing a high-paying job; they may seek academic growth, they may want to have a positive impact through public interest or human rights law, or they may simply have grown up so enthralled by Jack McCoy that they just know they want to be a lawyer. The ideological law school applicant derives a personal utility from the pursuit of these non-monetary interests. To these candidates, deciding whether or not to attend law school boils down to figuring out exactly how much utility they will derive from pursuing their interests and whether it is worth the cost of a JD. This is something each such candidate will have to figure out for themselves.
Ideological candidates should be aware that in this realm of motivations there are widely varying degrees of prestige and rank importance. If one wants to pursue academia, for example, there are only a few law schools at which this is a realistic aim and even then the applicant will usually have to achieve a very high class rank in order to even have a chance. There are also some public interest or government career paths where the prestige of your JD is equally important, such as with the ACLU or the Justice Department. If, on the other hand, you are interested in being a public defender in a smaller community, you should not feel as hard-pressed to attend a top-notch law school.
Finally, even though law school is expensive, candidates attending law school in ideological pursuits should take solace in the generous loan-forgiveness programs offered by many schools (LRAP) as well the U.S. Government (IBR5 and PSLF) for students choosing qualifying low-income/public interest career paths.
The purely pragmatic law school candidate is a different animal. This candidate is applying because they are interested in the increased earning potential of a JD. These applicants are wooed by soaring starting salaries of “Big Law”* associates at top firms where newly minted law school grads can earn upwards of $200,000 a year including salary and bonus. There is nothing wrong with pursuing a JD for financial reasons, but many of those applying to law school have not done enough research to know if it is indeed a fiscally savvy move for them. Fortunately for these candidates, however, there are some simple calculations they can make to aid them in determining if going to law school is truly a smart financial move. Before making these calculations, however, there are some facts the pragmatic law school applicant should come to terms with.
First, not everyone who graduates with a JD can work in Big Law. In fact, most law school graduates will not work in Big Law – and some will not work at all!There are only so many “Big Law” firms and, unsurprisingly, high salaried positions are usually correlated with prestigious law school alma maters. Which brings me to my second point – not everyone can go to the most prestigious/selective law schools; there are only so many slots available in each year’s classes and there are only so many of these prestigious schools. Third, class rank is a vital factor in determining your employment prospects, and not everyone can be in the top 10 percent of their class. Many 0L’s enter law school with the assumption that they will finish in the top half of their class – or perhaps even the top 25% or 10%. However, the laws of reason dictate that a minority of law school students will achieve such a feat – indeed, let’s not forget that half of all law students graduate in the bottom half of their class. Smart candidates will assume a median rank – at best – when deciding whether or not law school makes sense for them.
Once you have come to terms with these realities the decision on whether or not to attend law school from a purely financial perspective comes down to a simple formula: the value of the JD you will be getting (based on the earning potential of a median-ranked grad at the schools you can get accepted to) vs. the cost of that JD. This is a relatively simple calculation as most schools publish employment data along with tuition prices. I say “relatively” simple, however, because many schools (especially lower-ranked institutions) misrepresent data on employment prospects. Take this quote, for example, from UC Hastings' website:
"According to recent employment statistics, the average annual salary for our graduates is $131,118 in firms with more than 100 attorneys, $107,222 in firms with 51 to 100 attorneys, and more than $90,000 in firms with 26 to 50 attorneys."6
Upon further thought, it’s obvious how little information this statement actually conveys. How many students work for each of those types of firms? What rank were they? What's the actual median starting salary for your graduating class on the whole? These are the questions any smart potential law school applicant – including “target” and “ideological” candidates – should be asking when doing their calculations.
I will now describe a methodology for calculating whether or not law school is a sound financial decision for you. This formula is very similar to that developed by Professor Herwig Schlunk in his article “Mamas Don’t Let Your Babies Grow Up to Be… Lawyers.”7 I have simplified his process to make it more easy to use for each candidate considering law school. I have also attached tables following the explanation of this methodology, but it is important to note that these are just example scenarios. Candidates interested in law school should make their own tables, tailored to their own prospects/goals and should merely employ this technique as a guide to making their unique calculations.
To demonstrate how this methodology can be used by different candidates, I created two hypothetical candidates considering law school: Candidate A and Candidate B. Candidate A has a strong LSAT score (168) and an outstanding undergraduate GPA (3.8+). Candidate B has a decent LSAT Score (160) and a less stellar undergraduate GPA (~3.2). This information yields two pieces of information to use in the following analysis: 1) it gives us an idea of what law schools they can each gain admission to, 2) it gives us an idea of their job prospects if they head directly into the workforce. Based solely on their numbers, Candidate A has a good chance of admission to a highly ranked law school (likely a top 10) while Candidate B will be more limited in their choice of schools and will most likely have to attend a lower ranked law school (perhaps a top 50). Candidate B will also have a harder time landing a job with a high starting salary were they to enter the workforce immediately, while Candidate A has a better chance of earning a strong starting salary right out of undergrad (employers like strong GPA’s too). These are the two key variables for this methodology: quality of the best law school you would attend and highest salary you can expect in the work force right now.
For generating the starting salaries that each candidate might expect to earn heading straight into the work force, I focused on the government job market – it’s a field I know a lot about and one that works very well for this analysis. Government consulting firms (Northrop Grumman, Booz Allen, etc.) will hire recent college grads with strong GPA’s at a starting salary of ~$65,000 a year. If your GPA is on the lower side, however, a more realistic scenario is going to work directly for the Government where a very high GPA is not a prerequisite. Positions with the government for recent graduates have a lot of positives (especially job security) but usually start at a yearly salary of $38,000. If both candidates were to enter the government job market, Candidate A would likely go to a consulting firm while Candidate B would likely work directly for the Government (again: these projections are only estimates based solely on their numbers).
We can do a similar salary projection for each candidate’s likely starting salary after law school. This is more difficult to speculate because the class rank each candidate achieves in law school will have a big impact on their employment prospects upon graduation, but for our purposes it is useful to assume a median class rank. Assuming candidate A did, indeed, attend a “top 10” law school, it is reasonable to give them a post-law school earning potential of $160,000 a year. This is the current market rate for the large law firms that recruit heavily at top law schools and, with a median class rank at top 10, this salary is likely very attainable for Candidate A after law school (should they want it). Candidate B, judging solely by numbers, will probably get into a top 50 law school so we need to adjust Candidate B’s post law school earning potential accordingly. This is a more difficult task because employment statistics are harder to verify for some lower-ranked schools (as many will inflate their graduates’ earnings). However, with a medium rank at a top 50 school it is reasonable to assume Candidate B’s greatest earning potential will be with small to medium sized firms. For a corresponding salary I will use the $90,000 a year figure from the UC Hastings website quote above since that is on the low end of their cryptic pronouncement on salary prospects and because the firm size they listed to correspond with that salary fits the definition of a small/mid-sized firm.
With pre and post-law school salary figures for Candidates A and B we can now do some simple math to determine if it is, indeed, a sound investment for each candidate. To do this, first I tracked the projected yearly salary of each candidate from age 22 to age 30, after taxes8, including a yearly 5% raise (note: the actual age of each candidate is not critically important, what is important is the length of time you do your calculations over; I used 9 years). I added in the cost of tuition at the end of this calculation and summed the cumulative gross wages each such candidate can expect to earn by the age of 30. In addition to the $200,000 cost of law school tuition it is also important to include the interest you will pay on this loan (assuming you do not have $200,000 in cash to pay for school)9. My calculations (made in Excel) are below:
Law School Candidate A
Law School Candidate B
|Age||Salary||Taxes||Post-tax Wages||Salary||Taxes||Post-tax Wages|
|Debt||0||$310,000||Tuition + Interest|
Results and Notes
For those attending law school for purely financial motivations, the results of these calculations should underscore the importance of the quality/prestige of the JD you will be paying nearly a quarter of a million dollars for. Since you will be paying interest on your tuition loans, the lower your starting salary after law school, the longer it will take to pay down these loans and the more interest you will accrue. A law degree that does not give you the strongest earning potential, then, will actually cost you substantially more than a JD from a top program. Likewise, performing poorly in law school and leaving with a low class rank, which also weighs negatively on your chances at earning a high salary, will also make your JD more expensive down the road. Fiscally motivated candidates, then, should be aiming for the best law school they can possibly attend, and all candidates should approach law school very seriously and should be very motivated to succeed. As ‘class rank’ is just that, however, not everyone can succeed. This risk of failure is yet another factor that should be included in your analysis; the more highly-regarded the school, the lower the chances (theoretically) for failure. However, although job prospects are strongest coming from a “top 10” law school, remember that no one is immune to the potential of failure in the job market – not even Harvard or Yale graduates.
In making your own calculations you should use all of your own variables: what would your starting salary be if you didn’t go to law school, how far into the future do you want to project, what rate of salary increase is appropriate for you, and, most importantly which kind of candidate will you be; a candidate for a top-ranked, ultra-prestigious law school, or an applicant bound for a lower ranked school with a less prestigious name? While I don’t want to place undue weight on your law school’s “name,” as it stands, the fact is the prestige associated with a law school is of critical importance when evaluating the purely financial sense of attending that school.
My goal in urging these calculations is not to dissuade anyone from attending law school, but rather to encourage a well-reasoned and fully thought-out decision. We make lots of difficult decisions that will shape our future, yet rarely do we have all of the information needed to do a complete and revealing analysis of the choices before us. In deciding whether or not to attend law school, take advantage of one instance where all the information one could want before making such an important decision is readily available.
If going to law school will make you happy – if, in your heart of hearts, you know you want to study or practice law – don’t let me discourage you from following your dreams. But if you’ve been looking at law school simply as a sure ticket to solid career and a high salary I advise extreme caution: the legal job market is substantially weaker today than it was five years ago yet there are more lawyers now than ever before. If you have the option of going to a top law school it is more likely to be a financially sound decision, but what exactly passes for a “top” school? That is another debate entirely, but let me just say this: if you are purely financially motivated, I would be wary of attending any school that does not give you a good chance (with median rank) of landing a market-paying job in a competitive market. The list of schools meeting that standard is short; there may be as few as fourteen. And if you can’t get into one of them, think hard about whether attending a weaker school is a smart choice. After all, for $250,000, you can buy a pretty nice house in today’s market… and it might be a much better investment.
1“No Longer Their Golden Ticket,” Alex Williams, New York Times, 1/15/10 www.nytimes.com/2010/01/17/fashion/17lawyer.html?pagewanted=1&em
2“The Year in Law Firm Layoffs – 2009, http://lawshucks.com/2010/01/the-year-in-law-firm-layoffs-2009, 1/3/10
3“While Law School Tuition Skyrockets, Government Student Loan Limits Remain Stagnant,” Shahien Nasiripour, 10/26/09 http://www.huffingtonpost.com/2009/10/26/while-law-school-tuition_n_334328.html
4“Best Defense? Seeking a Haven in Law School.,” Nathan Koppel, Wall Street Journal, 3/19/09, online.wsj.com/article/SB123741745678277765.html?mod=googlenews_wsj
5Government Income-Based Repayment info: http://www.finaid.org/loans/ibr.phtml
6UC Hastings: http://www.uchastings.edu/prospective-students/after-hastings/index.html (retrieved 1/19/10)
7“Mamas Don’t Let Your Babies Grow up to Be… Lawyers,” Herwig Schlunk, 10/29/09 online.wsj.com/public/resources/documents/SSRN-id1497044.pdf
8Tax Calculator: www.moneychimp.com/features/tax_brackets.htm
9Student Loan Calculator: http://www.finaid.org/calculators/loanpayments.phtml
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