Responses:bananatopia wrote:1.) After taking out taxes you'll have about 98k extra from your first year salary. Also, graduating a year early doesn't mean that you don't have to keep yourself alive for that year, so subtracting bare bones living expenses (for a single in Chicago maybe 20k), you have 78k.
2.) This only matters if you actually land a biglaw position. If you don't you'll just be screwed one year sooner and then partially unscrewed one year sooner after your loans are forgiven two decades later. Attempting to factor out PI/Gov self selection, people who want biglaw at NU have maybe 70% chance of landing it. So factoring in the odds that your extra year actually matters 78k*0.7=54.6k
3.) This assumes that the amount of time you spend as an associate in biglaw is essentially a function of age (i.e. "I'm planning to work in biglaw until I turn 35.") rather than a constant (i.e. "Realistically I'll probably only last 4 years in biglaw." or "I'll work in a large firm until my debt is paid off, and then lateral to much lower paying, but higher satisfaction legal work."). Since you don't have full control over your career such that you can spend exactly as many years as you'd like working for a large firm, you have to factor out some fraction of the above 54.6k to account for the odds that your firm "encourages" you to find employment elsewhere (almost certainly at a much lower salary) after a given number of years. I would argue to factor out 50%, since that reflects how much control you have, in theory, over your job, since continued employment is always an "and" function of your desire to remain and your employer's desire to retain you.
4.) The above advantage has to be converted into scholarship dollars in order to help you make actual decisions on which school to attend. Each dollar in scholarships/lower tuition is worth about $1.25 in debt at graduation. So the advantage has erroded to 21.8K.
You'll also borrow about 20k less for living expenses (before accrued interest), since you only have to borrow for living expenses for two years rather than three years, so the final total comes to a ≈42k advantage (in scholarship dollars) for NU AJD over 3 years at NU. Make decisions using that estimate rather than "Assuming equal financial help, at any given point past graduation, you will be about 100k-200k ahead of where you would have been in a 3-year program."
(1) Yes, after taxes, you earn about 100k your first year in biglaw. No, you should not subtract living expenses from the savings calculation. You have to pay for food and housing either working or as a student. If anything, living expenses increase the financial advantage of the AJD program because you're not financing your third year of living expenses with loans.
(2) There are law school applicants that can reasonably expect to get biglaw. People can discount their own likelihood as they see fit. If you are planning to go PI and use public service loan forgiveness, the AJD program will not benefit you as much financially.
(3) If you stay in biglaw long-term, the benefit of graduating a year early is much greater than 200k. You're a year ahead in compensation every year -- this includes making partner a year earlier. If you assume 3 years of biglaw --> IH, then the difference is that the AJD starts the IH position sooner. So the compensation difference is equal to starting IH salary plus higher compensation each year thereafter in the form of salary increases. Unless you take an IH job where your compensation maxes out soon after starting, you're still talking about a substantial financial reward for starting a year early.
(4) I'm imagining that the $1.25 figure is calculated from some mix of interest and inflation (2018 dollars earned will be worth less than 2015 dollars paid). Some adjustment here is appropriate. I don't know what that factor is, but it will be less for the AJD program because, as a 2-year program, less interest and inflation will occur.
(5) You didn't factor in interest savings. Using very rough calculations:
Assuming full $165k tuition + 20k per year living expenses, and 25k in SA compensation, where the expenses are fully financed by loans at a 6.2% interest rate, an AJD graduates with about 200k in debt whereas a 3-year student graduates with about 230k in debt. The ~30k principle difference is just where you stand at graduation. Factor in faster repayment and interest on the principle difference over the duration of the loan, and the difference grows considerably.