Law School Investment for Dummies (Now w/ Link)

[Bronte]

I figured that would be the response.

I think what that overlooks is repayment options like IBR. This, in essence, provides a similar government subsidy to the borrower (law student) as is provided to the lender (bank). If one spends $100,000 getting a law degree and ends up with a job at McDonalds, one is only on the hook for a fixed percentage of your income. And if one stays at McDonalds a long time, one's loan will be forgiven in 20 years)

(It's more likely that a JD's rock-bottom job, salary wise, is in a PD office or similar rather than at McDonalds, in which case their debt would be forgiven after only 10 years)

Yes, I'm looking into quantifying IBR and LRAP type options. I think they can be viewed as complex binary options, namely cash-or-nothing puts.

Granted, I can see using something higher than the 8% loan rate. But Schlunk is using rates up to 27%! That's absurd. In my estimation, even 16%, double the actual cost of funds, is quite high. I think 10-12% is probably the best number.

Agreed. This is why I use a lower spectrum.

This is of course a theoretical discussion. Your spreadsheet is quite nice and explains the numbers quite well.

But may I suggest that if earnings are #1 priority to one who could/would create (or even fully understand) this spreadsheet, and its underlying concepts (dcf, pv, annuities, etc), you become a banker. Cheers!

One of my main anxieties is the possibility that I should be going into pure finance, not law. Let's not exacerbate it. FWIW, I plan to work in securities law / banking & finance litigation. And, hell, you seem to understand the spreadsheet! Doesn't this concept apply to you to?

[Bronte]

Well I think it would be quite difficult to take LRAP into account. The programs vary so widely. IBR is more workable in this type of setting. It's the same for everyone and it's easily quantifiable. Your payments are capped at 15% of AGI-$16,245, period. If there's a balance remaining after 25 years (10 if PI), it gets wiped clean.

Yes the LRAPs are difficult to quantify--I've discovered this much. Thanks for the info on the IBR. For now, it's probably sufficient to say that we've reduced the discount rate to subjectively account for the value of these options, which Schlunk seemingly ignores. These calculations are ultimately "back of the napkin" and introducing too much complexity / precision is probably misleading.

Well I work in finance & accounting right now, so, yeah. Take it from me, the monetary calculation is an extremely important one, but it shouldn't be the be-all-end-all.

Agreed, and I hope people do no infer that, because this thread is dedicated exclusively to economic concerns, my law school decision is based exclusively on economic concerns or anyone else's law school decision should be focused exclusively on economic concerns. In fact, I would go so far as to say that no one should make any serious life decisions based on this model. However, I think it can be a valuable tool to get people thinking about the numbers and understanding the nature of the debt and costs associated with law school.

[Interminable_Waiting]

This is quite helpful. I wish there was a way to put in realistic average starting salaries at each law school, depending on public/private sector and profit/nonprofit, and the average chences of a student at a law school getting that type of job.

Then a prospective law student could simply plug in a scenario, such as: I am aiming for private sector for-profit law: coming out of BC the average salary for this type of law is XXX, whereas coming out of Brooklyn it is only XX.

That would truly be a comprehensive formula. Impossible to get all the required data though.

[Bronte]

This is quite helpful. I wish there was a way to put in realistic average starting salaries at each law school, depending on public/private sector and profit/nonprofit, and the average chences of a student at a law school getting that type of job.

Then a prospective law student could simply plug in a scenario, such as: I am aiming for private sector for-profit law: coming out of BC the average salary for this type of law is XXX, whereas coming out of Brooklyn it is only XX.

That would truly be a comprehensive formula. Impossible to get all the required data though.

Yes, it's difficult to estimate what salary you can expect (in a mathematical sense). My hope is that this type of analysis will at least give people a sense of the economic variables involved in going to law school. By the way, I'm planning to rewrite the OP to be more of a tutorial and less of a mechanical set of instructions. Maybe I'll do that this weekend.

[rezipsa]

fyi

--LinkRemoved--

A Way Forward: Improving Transparency in Employment Reporting at American Law Schools


April 3, 2010


Abstract:
The decision to attend law school in the 21st century requires an increasingly significant financial investment, yet very little information about the value of a legal education is available for prospective law students. Prospectives use various tools provided by schools and third parties while seeking to make an informed decision about which law school to attend. This Article surveys the available information with respect to one important segment of the value analysis: post-graduation employment outcomes.

One of the most pressing issues with current access to information is the ability to hide outcomes in aggregate statistical forms. Just about every tool enables this behavior, which, while misleading, often complies with the current ABA and U.S. News reporting standards. In this Article, we propose a new standard for employment reporting grounded in compromise. Our hope is that this standard enables prospectives to take a detailed, holistic look at the diverse employment options from different law schools. In time, improved transparency at American law institutions can produce generations of lawyers who were better informed about the range of jobs obtainable with a law degree.

[undec]

While this looks like a useful tool (similar to a spreadsheet I've made - thanks, I'll make a couple changes to mine now , I would recommend against anyone using this starting salary estimation method. Obviously, this is near impossible to calculate, and it's understandable why you've entered this back of the envelope approach (my point is not to attack your method). However, hardly anyone will make the salary calculated as such, and therefore, the results aren't terribly useful for most (let's say 90% of) people.

As an alternative, given the bi-modal distribution of starting salaries, one might be better served to have two sheets, using both peak values for starting salaries, and give the two results some serious thought. E.g.:
- "well if I enter biglaw and make 140k, everything looks rosy."
- "If however, I come out with a 60k salary... now is this worth it?/can I live with it?/do I still want to do it"
- "how risk averse am I? etc. etc.

In fact, for the low peak, perhaps enter a value just above your school's LRAP, as a (not really) worst case scenario?

[Bronte]

While this looks like a useful tool (similar to a spreadsheet I've made - thanks, I'll make a couple changes to mine now , I would recommend against anyone using this starting salary estimation method. Obviously, this is near impossible to calculate, and it's understandable why you've entered this back of the envelope approach (my point is not to attack your method). However, hardly anyone will make the salary calculated as such, and therefore, the results aren't terribly useful for most (let's say 90% of) people.

As an alternative, given the bi-modal distribution of starting salaries, one might be better served to have two sheets, using both peak values for starting salaries, and give the two results some serious thought. E.g.:
- "well if I enter biglaw and make 140k, everything looks rosy."
- "If however, I come out with a 60k salary... now is this worth it?/can I live with it?/do I still want to do it"
- "how risk averse am I? etc. etc.

In fact, for the low peak, perhaps enter a value just above your school's LRAP, as a (not really) worst case scenario?

Yes, these are good pragmatic approaches.