I've created an Excel spreadsheet that helps you to determine whether law school is a good investment for you. It should be very easy to use.
I. How to Get It
You can get the spreadsheet here: https://docs.google.com/spreadsheets/d/ ... sp=sharing (to download, click File -> Download As...). Please note I won't be granting access to edit the sheet directly; you'll need to download it to your computer.
I highly recommend reading the rest of this post (especially the caveats) before using the calculator.
II. How It Works
Ahhh, math, the bane of all (would-be) law students! Don't worry, I've done most of the math for you. You just need to fill out the info in the "Calculations" box, and the calculator does the rest. Before you blindly rely on this tool, though, I highly recommend reading the "Caveats" section of this post.
At any rate, onto the calculator. Here's how it works:
- You input a bunch of info, such as your expected income if you don't attend law school and various stats about a specific law school.
- The spreadsheet uses generally accepted principles of finance to estimate the "net present value" (NPV) of attending a specific law school, relative to what you would earn if you didn't attend law school at all.
- The spreadsheet tells you whether that law school is a good investment for you, based on your individual circumstances.
There are three versions of the model: (1) the default upfront-payment version, which assumes you pay your tuition upfront as a lump sum and do not take out loans for your cost of living during law school, (2) the debt version, which allows you to put in amount of annual debt payments and the number of payments (and also includes the option to pay for part of law school upfront), and (3) the PAYE version, which assumes you borrow the entire cost of law school and pay back your loans under the federal "Pay As You Earn" (PAYE) program.
The sheet contains as a default numbers I pulled from LST Score Reports for Loyola (Los Angeles). In the default version, the spreadsheet shows that Loyola is a terrible investment at full price if you would earn $65,000 per year (growing at 3% annually) by not attending law school. But if you would earn only $40,000 per year (growing at 3%) by not attending law school, Loyola starts to look like a good investment. What about if you would earn $46,000 (growing at 3%) by not attending law school? Close call.
Things generally look similar in the debt version, assuming you're borrowing the same money that you'd otherwise be paying upfront.
In PAYE version, things change. Using the Loyola (LA) example again, Loyola still looks like a bad investment if you could earn $65,000 per year (growing at 3% annually) by not attending law school. But if could earn only $46,000 per year (growing at 3%) by not attending law school, Loyola looks like a great investment. (In the default version, $46,000 looked like a close call.) Please note that PAYE is not available for all borrowers. See https://studentloanhero.com/pay-as-you- ... quirements for more information.
III. Why It Can Be Useful
There are some great tools (on TLS and elsewhere) to help you decide between law schools, such as Law School Transparency, lawschool22's COA calculator, TLS threads compiling employment stats, and scores of other TLS threads containing valuable wisdom. This tool tries to add some analytical rigor to the decision about whether to attend law school at all.
These models highlight the importance of examining individual circumstances when deciding whether law school is a worthwhile investment. In threads in which a prospective law students asks whether a particular law school is worthwhile, I've frequently observed TSLers offering one-size-fits-all recommendations without asking what the person could do if they didn't attend law school. Hopefully people will cut down on this practice after seeing that the question really depends on individual circumstances—particularly what alternative careers are available to the person. The judgment as to whether a particular law school is a good investment at a given price is different for someone who could work as a Big Four accountant than for someone could work as a barista.
The models also highlight the importance of going beyond just "assuming you'll be median" (a common piece of advice I've seen on these forums). Although the motivation underlying the "assume median" advice is good—convince prospective students they're not special cases that will outperform all their peers—the advice does not present a very accurate picture of expected outcomes, in part because even at schools where the median student has a decent outcome, a significant chunk of the class ends up unemployed or underemployed. For these schools, an assumption that you'll end up median likely overstates your expected income. To fix this problem, the default settings for each model consider the NPV of the weighted average of two different outcomes: (1) employed using the mean compensation of employed graduates and (2) unemployed using compensation given by the user. (The weights come from the percentage of graduates that are employed within nine months of graduation.) Users can customize the models to their circumstances even more by manually changing the income projections in the "Calculations" tab.
I think the spreadsheet does a reasonably good job for most cases. However, it is far from perfect. In particular, you should note the following caveats:
- The calculator treats risk simplistically. In particular, the model does not a very good job distinguishing between law schools with a great deal of variability in employment outcomes (e.g., Hastings, with its low 55.5% employment score but respectable 19.3% BigLaw score)—which should receive a higher risk discount—and schools with less variability in employment outcomes (e.g., Penn State, with a respectable 82.4% employment score but lower 8.8% BigLaw score).
- The calculator does not account for taxes (except the tax bomb for PAYE).
- The calculator does not account for a potential exit from your first job (or the legal profession altogether) and lower earnings resulting from said exit. (Instead, it assumes that your compensation salary grows at a constant rate that you specify in the cover sheet.) But if you have a decent idea of your expected employment outcomes (e.g., three years in BigLaw with BigLaw-level compensation, then in-house at the mean in-house compensation for someone at that level), you could build a rough approximation of your project income into the "Calculations" tab yourself. To do this, you can just edit the "inc_emp" column to be equal to whatever you project your future income to be. If you have a couple ideas of what your career might look like, you could even build each scenario into alternative versions of the calculator. Then you might take the average (or a weighted average) of the NPVs from the different scenarios.
- Overall, the default income projections are very rough. I highly recommend refining them to match your individual circumstances. This goes for both your non-LS career and your post-LS career. For guidance on how to change the default income projections, see #3 above.
- PAYE isn't quite as simple as a simple "YES" on the cover sheet makes it look. First, your eligibility is conditioned on the existence of a federal program. Second, there may be a "tax bomb" at the end (when your debt is forgiven), such that all the cancelled debt is treated as taxable income. You may be taxed on that income at a very high tax rate. Although the spreadsheet attempts to account for this tax bomb (and your tax liability may be reduced by extent to which you are insolvent, if at all), getting hit with this tax bomb may feel very different when it actually comes along. Third, interest will continue to accrue (and your debt to grow) until it is forgiven. I have no clue how this affects your credit or anything like that. Do more research into PAYE if you plan to use it to pay back your debt.
- This is only "one view of the cathedral," so to speak. There are many considerations relevant to your choice whether to attend law school. You should not treat this calculator as a substitute for those other considerations. Even if you're only thinking about law school as a financial investment (which seems foolish to me), you should look at things from different angles. For example, you might consider how you would handle living with massive amounts of debt.
I MAKE NO REPRESENTATIONS, WARRANTIES, OR OTHER ASSURANCES OF ANY KIND, INCLUDING ABOUT THE ACCURACY OF THESE CALCULATIONS OR THE VALIDITY OF THE ASSUMPTIONS UNDERLYING THE CALCULATIONS. THIS SPREADSHEET SHOULD NOT BE A SUBSTITUTE FOR YOUR OWN INDEPENDENT ANALYSIS. THE CALCULATIONS MADE IN THE SPREADSHEET RELY ON TAX, LEGAL, AND OTHER ASSUMPTIONS THAT MAY OR MAY NOT BE ACCURATE. CONSULT YOUR OWN TAX AND LEGAL ADVISERS. I AM NOT YOUR FINANCIAL ADVISER OR LAWYER.
VI. Ongoing Improvements and Updates
If anyone wants to make improvements, feel free, and I'll either work your improvements into the spreadsheet or add them as additional tabs in the spreadsheet. I also welcome comments and suggestions.
*** UPDATE: I've added PAYE capability. Just go to the "Cover Sheet (PAYE)" tab and input the required info, and the spreadsheet takes care of the rest. ***
*** UPDATE 2: I've added risk-aversion capability. Users can now tailor the results to their risk aversion (the assumption being that LS is riskier than not going to LS—although users can tell the spreadsheet that LS is actually the less risky option). ***
*** UPDATE 3: I've added another model that allows you to calculate the NPV where you finance law school with debt but not using PAYE. This version also allows you to do a mixture of both cash and debt. ***