A quick an dirty way to judge your LS investment

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kswiss
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A quick an dirty way to judge your LS investment

Postby kswiss » Fri Mar 05, 2010 5:35 pm

Thoughts on cost/benefit analysis of law school...

I come from a very financially oriented family. My grandfather was a CPA / comptroller and is a money nerd. It seems that the prevailing wisdom in regards to any kind of graduate school is this:

You shouldn't go into to debt for more education any more than you will make in the first year of gainful employment after obtaining the extra education.

This seems like a good starting point when looking at the debt one will incur as a result of your education. This doesn't include UG debt. But if you are going to have to borrow 100k to attend law school, and there isn't a good chance that you will make 100k within a year of graduation, then you should seriously think about what you are doing.

For example, my wife is a social worker, and she decided to get her Masters to be a therapist. Three years of school cost her 32k in loans (we were both working while she did this.) Her first year out of school she make 38k. 2 years later (after being fully licensed this summer) she will make 60k plus. May not seem like a great salary, but the investment was sound.

I am looking at 60k for tuition after merit aid. Since I'm probably going to attend a mid-T2, I can't expect a great salary, but my UG degree is good for about 45k already, so I should probably borrow at most 45k for law school. (which is what I can guarantee I can make regardless of a law job).

Luckily this works for me, because I have some scholly money, and the aforementioned spouse salary. It worries me that some people are willing to go into debt 100k+ with no real plan to pay it back. HYS and T14 are probably exceptions to this rule, since your career earnings will justify the increased debt. Planning on public service and LRAP should also be considered, as well as federal loan forgiveness programs.

Long story short: take a realistic look at what you are doing. If you are going to a school outside of the T14 sticker, make sure that you know what you are getting into and exactly how much debt you will be in when you get out. Make a realistic estimate of how much you can make upon graduation, work out your projected loan payments, and make sure it is really something you want to do. The key word is realistic. Its fine to dream of graduating top 5% and being the kid that gets Biglaw out of T4, just don't depend on that unlikely scenario for your plan to work out.

Again: you should only borrow for graduate school what you can likely earn in the first full year after graduation. Good rule.

wired
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Re: A quick an dirty way to judge your LS investment

Postby wired » Fri Mar 05, 2010 6:51 pm

So what you're saying is you are WL'd or held by Vanderbilt and you are trying to get people to withdraw their applications so you will get in.


I kid. I agree with your analysis.

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Kohinoor
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Re: A quick an dirty way to judge your LS investment

Postby Kohinoor » Fri Mar 05, 2010 7:14 pm

This already kinda is common knowledge. It's no more empirically sound than most other theories regarding LS debt, but it's certainly commonly tossed around at least.

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jks289
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Re: A quick an dirty way to judge your LS investment

Postby jks289 » Fri Mar 05, 2010 7:22 pm

If everyone made decisions this way the only people who could go into higher level public interest or government work would need at least a half, and probably a full-ride at a Tier one school. You aren't considering LRAP or IBR loans. I am debt-adverse and trying to limit loans. But I don't want BigLaw and I'd rather take out the 100K (hopefully less) than dip down to a lower rank school and limit my career options.

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dextermorgan
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Re: A quick an dirty way to judge your LS investment

Postby dextermorgan » Fri Mar 05, 2010 7:27 pm

Sound advice.

I am assuming that your wife did the part time MSW option, thus allowing her to work while in school. That had to soften the debt impact.

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kswiss
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Re: A quick an dirty way to judge your LS investment

Postby kswiss » Fri Mar 05, 2010 7:33 pm

No, I was in UG and she went full time. Her MSW program had paid practicums. They didn't pay much, but were enough to live on.

I agree about choosing to go to a higher ranked school for more debt. I'm on the WL at a few schools that cost significantly more than where I am currently accepted, but would also possibly turn into better jobs.

Problem with that scenario is: there are no guarantees that you are making a solid investment. Calculated risk: yes. If I get off the WL at one of those schools that's the choice I will have to make. The meritocratic nature of the law industry makes it a different kind of case, but the underlying idea is the same. Only take on more debt then you can manageably pay off in the most likely scenario out of school. Seems like a good idea.

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Spaceman Spiff
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Re: A quick an dirty way to judge your LS investment

Postby Spaceman Spiff » Fri Mar 05, 2010 7:35 pm

Your line of reasoning is rather myopic. While this may seem idealistic (an attitude I am not generally prone to), isn't it worth the debt to be happy with your career? I understand that one may have to live a monk-like existence for the first few years in order to pay debt down, but I'd rather do that than find myself stuck in a job I'm wholly unsatisfied with.

jks289 wrote:If everyone made decisions this way the only people who could go into higher level public interest or government work would need at least a half, and probably a full-ride at a Tier one school. You aren't considering LRAP or IBR loans. I am debt-adverse and trying to limit loans. But I don't want BigLaw and I'd rather take out the 100K (hopefully less) than dip down to a lower rank school and limit my career options.


Also, the bolded.
Last edited by Spaceman Spiff on Fri Mar 05, 2010 11:50 pm, edited 1 time in total.

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Bronte
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Re: A quick an dirty way to judge your LS investment

Postby Bronte » Fri Mar 05, 2010 11:40 pm

It's a decent rule of thumb, but a more sophisticated analysis can and should be undertaken. There are two main concerns: one is the more practical concern to which OP alludes--namely, the ability to service your debt--and the other is a more abstract economic analysis of the investment as if it were a financial instrument, like a bond. For the latter, see Vanderbilt Law Professor Schlunk's sensationally titled paper, "Mamas Don't Let Your Babies Grow Up to Be... Lawyers" (http://papers.ssrn.com/sol3/papers.cfm? ... id=1497044). One can customize this approach (and, often, come to a different conclusion than Prof. Schlunk).

In terms of the ability to service your debt, it's better to actually use a financial calculator (a mortgage calculator, http://www.bankrate.com/calculators/mor ... lator.aspx, does the trick) to calculate your required annual payment. Then calculate the average annual salary you would need to make to earn a decent after-tax, after-payment net income: Net income = Gross income * (1 - tax rate) - Annual debt payment.

I'm also a money nerd.

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kswiss
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Re: A quick an dirty way to judge your LS investment

Postby kswiss » Sat Mar 06, 2010 1:43 am

If you read the original post I mention LRAP and federal loan forgiveness. These should definitely be a factor when calculating how much debt you can handle.

Everyone will and should make their own decision. I just hope everyone is actually thinking about the debt they are taking on, and not thinking: I'll get through law school and then think about it. I know that this is exactly how I was thinking about 6 months ago. It becomes more real when I'm actually going to have to sign that paperwork in the next several months

I just though about this because I have a friend who went to an infamous T4 (or THE infamous T4), and was still under the impression that JD=security. After graduation, had had to intern for the better part of the year (for free) before being offered a job that paid less than my last retail job. It bums me out. I think people think a lot about which school will give them the best options etc, but I hope that those that don't have full rides or money hanging around look realistically at what they can do.

Thats all. In no way is this meant to be offensive.

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kswiss
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Re: A quick an dirty way to judge your LS investment

Postby kswiss » Sat Mar 06, 2010 1:45 am

Also...this discussion probably applies differently to people in different ranges of the rankings. It stands to reason that the farther from no. 1 the school is, the more risk is involved. Obviously there are several other factors.




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