NPV of law school?

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NPVLaw
Posts: 10
Joined: Sat Apr 28, 2012 3:12 pm

NPV of law school?

Postby NPVLaw » Sat Apr 28, 2012 3:54 pm

Hello all,

I am an active duty military member looking for a career change, and I have been planning on going to law school. I have been slogging out an MBA from Oklahoma State, which I will have completed in the summer before I attend law school.

Here is my question:
I am trying to create a model to evaluate the net present value of attending law school.
Here are my inputs:

LSAT score
GPA
(non-qauntifiable input: I am a veteran with two tours: OEF/OIF, + short tour in Africa, overseas Germany etc)

Using the above data I select a range of schools I might attend, examine their costs (tuition and living expenses), and subtract these from the potential income stream graduating from that school (average 1st year salary). I then add in GI Bill benefits, yellow ribbon, etc.
This give me my NPV for law school, exclusive of opp. costs.

For opportunity costs, I take the medain salary of an OSU Spears School of Business MBA grad (60k). I then compare Law school with an MBA career.

I am not using any sort of a discount rate right now.

Disclaimers:
-I realize recently some of the data law schools have been providing regarding income streams and employment have come under scrutiny.
-I realize this model is crude. Does anyone else have a better idea?
-I realize I am excluding job satisfaction/stress of different tracks with this model. For me, I am satisfied with my job if:
a. I can sleep next to my family most nights.
b. When I go to work, no one tries to kill me.
c. All business trips must exclude hostile fire areas and combat zones (see b.)

Thank you for any advice others may have.

-Matthew

Paul Campos
Posts: 644
Joined: Mon Dec 12, 2011 9:44 am

Re: NPV of law school?

Postby Paul Campos » Sat Apr 28, 2012 4:05 pm

NPVLaw wrote:Hello all,

I am an active duty military member looking for a career change, and I have been planning on going to law school. I have been slogging out an MBA from Oklahoma State, which I will have completed in the summer before I attend law school.

Here is my question:
I am trying to create a model to evaluate the net present value of attending law school.
Here are my inputs:

LSAT score
GPA
(non-qauntifiable input: I am a veteran with two tours: OEF/OIF, + short tour in Africa, overseas Germany etc)

Using the above data I select a range of schools I might attend, examine their costs (tuition and living expenses), and subtract these from the potential income stream graduating from that school (average 1st year salary). I then add in GI Bill benefits, yellow ribbon, etc.
This give me my NPV for law school, exclusive of opp. costs.

For opportunity costs, I take the medain salary of an OSU Spears School of Business MBA grad (60k). I then compare Law school with an MBA career.

I am not using any sort of a discount rate right now.

Disclaimers:
-I realize recently some of the data law schools have been providing regarding income streams and employment have come under scrutiny.
-I realize this model is crude. Does anyone else have a better idea?
-I realize I am excluding job satisfaction/stress of different tracks with this model. For me, I am satisfied with my job if:
a. I can sleep next to my family most nights.
b. When I go to work, no one tries to kill me.
c. All business trips must exclude hostile fire areas and combat zones (see b.)

Thank you for any advice others may have.

-Matthew


If you can actually get a $60K job with your MBA, the chances of the NPV of a law degree being positive for you are going to be extremely low. There aren't more than 15-18 law schools right now where the median starting salary for grads is as high as $60K. And keep in mind that your starting salary would have to be considerably higher than $60K to compensate for the combination of opportunity and direct cost (although the latter might be fairly small -- I don't know how the GI bill works in this context).

NPVLaw
Posts: 10
Joined: Sat Apr 28, 2012 3:12 pm

Re: NPV of law school?

Postby NPVLaw » Sat Apr 28, 2012 4:22 pm

I am assuming GI + Yellow Ribbon to be 20k per year. I am not discounting because this benefit is supposed to adjust for tuition increases (and therefore inflation, as schools certainly take inflation into account when increasing tution).

Also, is there any premium to be had having both a JD and an MBA that I am not considering?

User avatar
dingbat
Posts: 4976
Joined: Wed Jan 11, 2012 9:12 pm

Re: NPV of law school?

Postby dingbat » Sat Apr 28, 2012 7:47 pm

NPVLaw wrote:Using the above data I select a range of schools I might attend, examine their costs (tuition and living expenses), and subtract these from the potential income stream graduating from that school (average 1st year salary). I then add in GI Bill benefits, yellow ribbon, etc.
This give me my NPV for law school, exclusive of opp. costs.

For opportunity costs, I take the medain salary of an OSU Spears School of Business MBA grad (60k). I then compare Law school with an MBA career.

I am not using any sort of a discount rate right now.

Disclaimers:
-I realize recently some of the data law schools have been providing regarding income streams and employment have come under scrutiny.
-I realize this model is crude. Does anyone else have a better idea?
-I realize I am excluding job satisfaction/stress of different tracks with this model. For me, I am satisfied with my job if:
a. I can sleep next to my family most nights.
b. When I go to work, no one tries to kill me.
c. All business trips must exclude hostile fire areas and combat zones (see b.)

Thank you for any advice others may have.

-Matthew

1) figure out what reasonable salary expectations you would have without going to law school. Factor in reasonable salary increases. Then deduct taxes (State and Federal)
1a) advanced: quantify benefits

2)work out the cost of attendance for a particular school, factoring in likely financial aid, GI bill, cost of living, etc.
*3) determine most likely salary expectations coming out of said law school. Factor in reasonable salary increases.
3a) advanced: quantify benefits

4) create cash flows for both (including reasonable time-frame for your analysis)
Remember to include cost of loan repayment if you need to borrow money for law school

5) determine an appropriate discount rate and apply to both cash flows

6) repeat for each school

*there are two approaches you can take.
A) You can statistically determine your odds for each point of salary distribution (e.g. if 50% get biglaw at $160k and 50% get shitlaw at $60k, your statistical average would be $110k)
B) Run a low/middle/high scenario (cash flow assuming biglaw, cash flow assuming medians, cash flow assuming shitlaw/doc review)
You may want to keep in mind that if you strike out of biglaw you could reasonably expect to make X based on your MBA alone.

B is more work, but it's better in that it shows you the various most likely outcomes.
(note: you should probably do the same for your business school if there's a significant deviation among graduates)

If you run into trouble and want me to review your model, just PM me

The Duck
Posts: 481
Joined: Tue Mar 13, 2012 10:14 am

Re: NPV of law school?

Postby The Duck » Sat Apr 28, 2012 8:29 pm

NPVLaw wrote:I am assuming GI + Yellow Ribbon to be 20k per year. I am not discounting because this benefit is supposed to adjust for tuition increases (and therefore inflation, as schools certainly take inflation into account when increasing tution).

Also, is there any premium to be had having both a JD and an MBA that I am not considering?


Do you have the Post 9/11? It pays 100% at a public school plus BAH (E5 w/deps). With a scholly I make money.

SpiteFence
Posts: 131
Joined: Mon Nov 01, 2010 12:26 pm

Re: NPV of law school?

Postby SpiteFence » Sat Apr 28, 2012 9:01 pm


NPVLaw
Posts: 10
Joined: Sat Apr 28, 2012 3:12 pm

Re: NPV of law school?

Postby NPVLaw » Sun Apr 29, 2012 12:35 am



Thanks, that was very entertaining. I ended up watching about five other videos from him.

-Matt




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