"Don't go to law school because of opportunity cost"

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voice of reason
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Re: "Don't go to law school because of opportunity cost"

Postby voice of reason » Mon May 31, 2010 12:26 am

TUP wrote:
voice of reason wrote:
Columbia Law wrote:I am sick of people on JDU and XOXO using opportunity cost as a reason not to go to law school. Use debt, unemployment, etc. but opportunity cost is a terrible argument. The truth is that most people have useless liberal arts degrees and can't get a good job anyway. I worked construction every summer leading up to my college graduation and made a ton of money. Then the economy tanked and they wouldn't put me on for permanent employment. I sent out resumes, went face to face, and called everyone...still nothing. I ended up working in retail for a year about 30 hours a week, occasional overtime. I think I made 12k the whole year. I know a lot of people who weren't even willing to look for a labor job who are graduates in the same boat as me.

Minus the lucky few who were able to get office jobs, construction jobs, police officer jobs, what opportunities are people really missing out on?


This is not really an argument against considering opportunity cost. It is an observation that your opportunity costs for law school are low. Some people have considerably higher opportunity costs. For some, opportunity costs exceed tuition.

Anyone considering law school should estimate their opportunity costs. As you illustrate, for some new college graduates, opportunity costs are low. But for people with more marketable degrees and experience, they can be tremendous.


And you can't quantify disliking your current career even if it's well paying. Some people act like the law school decision is a DCF analysis problem in finance class in which every variable is fully quantifiable.


Sure you can quantify it. How much more would you have to earn to make your current career worthwhile? How big a pay cut would you take to do something you actually liked? There, you just quantified it.

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Re: "Don't go to law school because of opportunity cost"

Postby 09042014 » Mon May 31, 2010 12:36 am

Opportunity cost should be a consideration, but you can't just say, they'd make 40K so add 40K per year. How much of that 40K would you actually put into a 401K, or into long term savings? Probably shockingly little.

I make more than 40K, but my opportunity cost is probably only about 20K/year.

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Re: "Don't go to law school because of opportunity cost"

Postby rundoxierun » Mon May 31, 2010 12:58 am

Desert Fox wrote:Opportunity cost should be a consideration, but you can't just say, they'd make 40K so add 40K per year. How much of that 40K would you actually put into a 401K, or into long term savings? Probably shockingly little.

I make more than 40K, but my opportunity cost is probably only about 20K/year.


umm.. not following the point you are making. I think when they say opportunity cost they are referring to the money/value you forgo by going to law school (i.e. you make 50k/yr but you dont do any paid work all 1L year so your opportunity cost is the forgoed 50k). Savings would come into play if we were talking discount rates or something.

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Re: "Don't go to law school because of opportunity cost"

Postby 09042014 » Mon May 31, 2010 1:07 am

tkgrrett wrote:
Desert Fox wrote:Opportunity cost should be a consideration, but you can't just say, they'd make 40K so add 40K per year. How much of that 40K would you actually put into a 401K, or into long term savings? Probably shockingly little.

I make more than 40K, but my opportunity cost is probably only about 20K/year.


umm.. not following the point you are making. I think when they say opportunity cost they are referring to the money/value you forgo by going to law school (i.e. you make 50k/yr but you dont do any paid work all 1L year so your opportunity cost is the forgoed 50k). Savings would come into play if we were talking discount rates or something.


But that 50K gets taxed. You pay rent, and other expenses, and you waste a lot of money. Basically you must take cost of living out of the equation because you aren't saving it. And while in law school that cost of living is included to total cost already.

Basically to calculate true opportunity cost you must consider what the net gain in worth over the three years.

A person who makes 40K, but works paycheck to paycheck and isn't accumulating assets has effectively no opportunity cost. Because after 3 years of working, they'd be where they were when they started.

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Re: "Don't go to law school because of opportunity cost"

Postby bigben » Mon May 31, 2010 1:11 am

Wait let me get this straight. So when opportunity costs are negligible, they are not a major consideration. Cool, thanks.

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voice of reason
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Re: "Don't go to law school because of opportunity cost"

Postby voice of reason » Mon May 31, 2010 1:15 am

Desert Fox wrote:
tkgrrett wrote:
Desert Fox wrote:Opportunity cost should be a consideration, but you can't just say, they'd make 40K so add 40K per year. How much of that 40K would you actually put into a 401K, or into long term savings? Probably shockingly little.

I make more than 40K, but my opportunity cost is probably only about 20K/year.


umm.. not following the point you are making. I think when they say opportunity cost they are referring to the money/value you forgo by going to law school (i.e. you make 50k/yr but you dont do any paid work all 1L year so your opportunity cost is the forgoed 50k). Savings would come into play if we were talking discount rates or something.


But that 50K gets taxed. You pay rent, and other expenses, and you waste a lot of money. Basically you must take cost of living out of the equation because you aren't saving it. And while in law school that cost of living is included to total cost already.

Basically to calculate true opportunity cost you must consider what the net gain in worth over the three years.

A person who makes 40K, but works paycheck to paycheck and isn't accumulating assets has effectively no opportunity cost. Because after 3 years of working, they'd be where they were when they started.


Certainly they have an opportunity cost, because after 3 years they're in the hole for all their living expenses and they've possibly also foregone consumption to keep those expenses down. Those are both opportunity costs.

I suppose there's a way to do the calculation where it could make sense to consider net gains, but it's also straightforward (moreso, I'd say) to count the opportunity cost (so far as income is concerned) as your after-tax income in the job you'd have if you weren't in law school, and not as what you'd save. e.g.:

Costs of attendance:
tuition 150,000
foregone income 75,000
lost time/freedom (subjective) 25,000
living expenses 50,000

Benefits:
present discounted value of marginal lifetime income 250,000
Improved subjective well-being 75,000

Net: $25,000 gain from attending law school

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Re: "Don't go to law school because of opportunity cost"

Postby rundoxierun » Mon May 31, 2010 1:23 am

Desert Fox wrote:
tkgrrett wrote:
Desert Fox wrote:Opportunity cost should be a consideration, but you can't just say, they'd make 40K so add 40K per year. How much of that 40K would you actually put into a 401K, or into long term savings? Probably shockingly little.

I make more than 40K, but my opportunity cost is probably only about 20K/year.


umm.. not following the point you are making. I think when they say opportunity cost they are referring to the money/value you forgo by going to law school (i.e. you make 50k/yr but you dont do any paid work all 1L year so your opportunity cost is the forgoed 50k). Savings would come into play if we were talking discount rates or something.


But that 50K gets taxed. You pay rent, and other expenses, and you waste a lot of money. Basically you must take cost of living out of the equation because you aren't saving it. And while in law school that cost of living is included to total cost already.

Basically to calculate true opportunity cost you must consider what the net gain in worth over the three years.

A person who makes 40K, but works paycheck to paycheck and isn't accumulating assets has effectively no opportunity cost. Because after 3 years of working, they'd be where they were when they started.


Still not following this line of thought. Yes, there is cost of living but in law school that cost is usually incurred as loans vs. in normal life it is paid. So if COL is 10k, 40k after taxes becomes 30k.. but in law school it would become a -10k, still a 40k difference. You might not be accumulating assets but as a law student you will be accumulating negative assets(liabilities). Its not about saving anything. Even if you live paycheck to paycheck you are forgoing those paychecks and instead taking out loans.

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Re: "Don't go to law school because of opportunity cost"

Postby dood » Mon May 31, 2010 1:25 am

...
Last edited by dood on Sun Jul 04, 2010 3:12 am, edited 1 time in total.

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Re: "Don't go to law school because of opportunity cost"

Postby bigben » Mon May 31, 2010 1:31 am

dood wrote:law school...is an end in itself


Image

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Re: "Don't go to law school because of opportunity cost"

Postby 09042014 » Mon May 31, 2010 1:36 am

tkgrrett wrote:
Still not following this line of thought. Yes, there is cost of living but in law school that cost is usually incurred as loans vs. in normal life it is paid. So if COL is 10k, 40k after taxes becomes 30k.. but in law school it would become a -10k, still a 40k difference. You might not be accumulating assets but as a law student you will be accumulating negative assets(liabilities). Its not about saving anything. Even if you live paycheck to paycheck you are forgoing those paychecks and instead taking out loans.


But cost of living is already included in the total cost of law school. You'd be effectively counting it twice. Total cost of attendance of Northwestern is 220,000 over three years. But that includes cost of living.

Also how many people do you know make 40K but only spend 10K on living? They live in bigger apartments, drive more expensive cars, go on expensive vacations.

The way I calculate the opportunity cost is the difference between my net worth in august 2010, and what it would be if I worked until August 2013, spending the way I normally spend.

Someone living paycheck to paycheck, and isn't accumulating equity in an asset, or paying down other debts doesn't have opportunity cost. Sure they are being more frugal, but you can't count that.

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Re: "Don't go to law school because of opportunity cost"

Postby voice of reason » Mon May 31, 2010 1:39 am

dood wrote:The problem with all you mofos is that for you, law school is simply a means to an end, while for me it is an end in itself. If you want to make money, go to B-school. If you want stability, redo UG in engineering. Most of my engineering friends 2-4 years out make around $100K and work standard 9-5 type gigs with relatively low stress. They got houses, boats, etc. If you want to study the law, the opportunity cost would work the other way...i.e. how many years do you have to delay before doing what you really want to do.


For most sane people law school is a means to being a lawyer. Maybe you meant to say being a lawyer is an end in itself, but even that is not quite right. Law school isn't "an end in itself" for anyone because law school is not an intrinsic value the way health and friends and acclaim and money are. Even if you attend with no intention of becoming a lawyer, it's a means to self-improvement or education or something else that you find intrinsically valuable.

If you want to be a lawyer, then law school is a means to that end.

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Re: "Don't go to law school because of opportunity cost"

Postby A'nold » Mon May 31, 2010 1:41 am

bigben wrote:
dood wrote:law school...is an end in itself


Image


Sure, maybe he didn't word it very well, but I get his point.

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Re: "Don't go to law school because of opportunity cost"

Postby r2b2ct » Mon May 31, 2010 1:47 am

tkgrrett wrote:
Desert Fox wrote:
tkgrrett wrote:
Desert Fox wrote:Opportunity cost should be a consideration, but you can't just say, they'd make 40K so add 40K per year. How much of that 40K would you actually put into a 401K, or into long term savings? Probably shockingly little.

I make more than 40K, but my opportunity cost is probably only about 20K/year.


umm.. not following the point you are making. I think when they say opportunity cost they are referring to the money/value you forgo by going to law school (i.e. you make 50k/yr but you dont do any paid work all 1L year so your opportunity cost is the forgoed 50k). Savings would come into play if we were talking discount rates or something.


But that 50K gets taxed. You pay rent, and other expenses, and you waste a lot of money. Basically you must take cost of living out of the equation because you aren't saving it. And while in law school that cost of living is included to total cost already.

Basically to calculate true opportunity cost you must consider what the net gain in worth over the three years.

A person who makes 40K, but works paycheck to paycheck and isn't accumulating assets has effectively no opportunity cost. Because after 3 years of working, they'd be where they were when they started.


Still not following this line of thought. Yes, there is cost of living but in law school that cost is usually incurred as loans vs. in normal life it is paid. So if COL is 10k, 40k after taxes becomes 30k.. but in law school it would become a -10k, still a 40k difference. You might not be accumulating assets but as a law student you will be accumulating negative assets(liabilities). Its not about saving anything. Even if you live paycheck to paycheck you are forgoing those paychecks and instead taking out loans.

Just remember not to count the loans spent on living expenses as total cost of law school while at the same time ignoring the money spent on living expenses when you keep the regular job. i.e. don't take the hypothetical 200k taken out in loans for tuition + living expenses and also count the 40k x 3 income lost (before a chunk gets spent on living) as total cost of law school. I understand if you want to count the differences in consumption presuming you are going to live a considerably different lifestyle but don't double count living expenses.

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Re: "Don't go to law school because of opportunity cost"

Postby d34d9823 » Mon May 31, 2010 1:52 am

ITT: People who don't understand opportunity cost argue about how to apply it to law school.

Also, any metric that you have to try to figure out how it works is not likely to help you make good decisions. If you don't already run the opportunity cost in your head, using it to make decisions is only going to confuse you.

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Re: "Don't go to law school because of opportunity cost"

Postby romothesavior » Mon May 31, 2010 1:57 am

Opportunity cost aside... what if you really want to be a lawyer? Shocking concept, I know. But some people really want to do it, and that requires you to go to law school.

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Re: "Don't go to law school because of opportunity cost"

Postby rundoxierun » Mon May 31, 2010 2:05 am

Desert Fox wrote:
tkgrrett wrote:
Still not following this line of thought. Yes, there is cost of living but in law school that cost is usually incurred as loans vs. in normal life it is paid. So if COL is 10k, 40k after taxes becomes 30k.. but in law school it would become a -10k, still a 40k difference. You might not be accumulating assets but as a law student you will be accumulating negative assets(liabilities). Its not about saving anything. Even if you live paycheck to paycheck you are forgoing those paychecks and instead taking out loans.


But cost of living is already included in the total cost of law school. You'd be effectively counting it twice. Total cost of attendance of Northwestern is 220,000 over three years. But that includes cost of living.

Also how many people do you know make 40K but only spend 10K on living? They live in bigger apartments, drive more expensive cars, go on expensive vacations.

The way I calculate the opportunity cost is the difference between my net worth in august 2010, and what it would be if I worked until August 2013, spending the way I normally spend.

Someone living paycheck to paycheck, and isn't accumulating equity in an asset, or paying down other debts doesn't have opportunity cost. Sure they are being more frugal, but you can't count that.


ok.. I see what you are saying now in terms of COL but I dont think difference in "net worth" between periods is a valid measure of opportunity cost. Even if ~20k/yr is the opportunity cost after COL, the ~60k opportunity cost is not insignificant. If we add in the COA at most schools it pushed the total cost upwards of 240k at sticker [not counting discount factors, interest on loans, etc.]

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Re: "Don't go to law school because of opportunity cost"

Postby profs<3mycomments » Mon May 31, 2010 2:09 am

d34dluk3 wrote:ITT: People who don't understand opportunity cost argue about how to apply it to law school.

Also, any metric that you have to try to figure out how it works is not likely to help you make good decisions. If you don't already run the opportunity cost in your head, using it to make decisions is only going to confuse you.


ITP: d34dluk3 makes the bare assertion that he understands opportunity costs in a way that you don't and then feels satisfied with himself.

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Re: "Don't go to law school because of opportunity cost"

Postby rundoxierun » Mon May 31, 2010 2:11 am

romothesavior wrote:Opportunity cost aside... what if you really want to be a lawyer? Shocking concept, I know. But some people really want to do it, and that requires you to go to law school.


Dude.. barely anyone who knows what high level lawyers do actually dreams of being one. Its like being a stock broker or investment baker, who actually dreams of being a stock broker. At that level almost everyone is in it for the money.(obviously some exceptions in certain niches.)

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Re: "Don't go to law school because of opportunity cost"

Postby TUP » Mon May 31, 2010 2:11 am

voice of reason wrote:
TUP wrote:And you can't quantify disliking your current career even if it's well paying. Some people act like the law school decision is a DCF analysis problem in finance class in which every variable is fully quantifiable.


Sure you can quantify it. How much more would you have to earn to make your current career worthwhile? How big a pay cut would you take to do something you actually liked? There, you just quantified it.


Again, I think that mindset is too theoretical, as though it were an exam problem. A couple years in a given career and no real experience in the career most of us want to pursue make it nearly impossible to answer those questions. It's too subjective to let finances completely drive the decision like many of the JDU crowd seem to suggest, which was my original point.

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Re: "Don't go to law school because of opportunity cost"

Postby redsox4lyfe » Mon May 31, 2010 2:29 am

.
Last edited by redsox4lyfe on Mon Sep 05, 2011 9:57 am, edited 1 time in total.

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Re: "Don't go to law school because of opportunity cost"

Postby romothesavior » Mon May 31, 2010 2:34 am

tkgrrett wrote:
romothesavior wrote:Opportunity cost aside... what if you really want to be a lawyer? Shocking concept, I know. But some people really want to do it, and that requires you to go to law school.


Dude.. barely anyone who knows what high level lawyers do actually dreams of being one. Its like being a stock broker or investment baker, who actually dreams of being a stock broker. At that level almost everyone is in it for the money.(obviously some exceptions in certain niches.)


Many, many people enjoy practicing law. Is big law a hoot? No, definitely not. But most people use it to pay off loans and boost their resume, and then they go do something with fewer hours and is more intellectually stimulating. I've spoken with a number of corporate in-house lawyers, civil attorneys and prosecutors, and for the most part, they seem to genuinely enjoy their jobs.

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Re: "Don't go to law school because of opportunity cost"

Postby ConMan345 » Mon May 31, 2010 3:48 am

profs<3mycomments wrote:
d34dluk3 wrote:ITT: People who don't understand opportunity cost argue about how to apply it to law school.

Also, any metric that you have to try to figure out how it works is not likely to help you make good decisions. If you don't already run the opportunity cost in your head, using it to make decisions is only going to confuse you.


ITP: d34dluk3 makes the bare assertion that he understands opportunity costs in a way that you don't and then feels satisfied with himself.

Yeah, he kind of seems like an ass.

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Re: "Don't go to law school because of opportunity cost"

Postby savagedm » Mon May 31, 2010 4:02 am

I haven't seen a one of you factor in interest on those loans into your figures... fail

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Re: "Don't go to law school because of opportunity cost"

Postby im_blue » Mon May 31, 2010 4:34 am

tkgrrett wrote:
A'nold wrote:This is why I constantly defend going to law school against the JDU trolls or those that say uninformed crap like, "take off the blinders man, they do have a good point." Those peeps just use circular reasoning to come to the conclusion that "they have a good point." Anyone that knows what it's like to come out of an average college with a BA in some kind of liberal art knows that there is no such thing as opportunity cost, lol.


Umm.. I go to an average college and will be getting a BA in Economics this December and I have a 40-50k/yr job lined up if I want it. Life isnt 100% as bleak as people paint it.


"The study by the National Association of Colleges and Employers found that 24 percent of 2010 college graduates who applied for a job have one waiting after graduation, up from 20 percent last year."
http://www.nytimes.com/2010/05/25/busin ... djobs.html

That 24% includes more employable degrees like CS and engineering, so the liberal arts numbers are certainly even lower.

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Re: "Don't go to law school because of opportunity cost"

Postby Columbia Law » Mon May 31, 2010 12:22 pm

im_blue wrote:
tkgrrett wrote:
A'nold wrote:This is why I constantly defend going to law school against the JDU trolls or those that say uninformed crap like, "take off the blinders man, they do have a good point." Those peeps just use circular reasoning to come to the conclusion that "they have a good point." Anyone that knows what it's like to come out of an average college with a BA in some kind of liberal art knows that there is no such thing as opportunity cost, lol.


Umm.. I go to an average college and will be getting a BA in Economics this December and I have a 40-50k/yr job lined up if I want it. Life isnt 100% as bleak as people paint it.


"The study by the National Association of Colleges and Employers found that 24 percent of 2010 college graduates who applied for a job have one waiting after graduation, up from 20 percent last year."
http://www.nytimes.com/2010/05/25/busin ... djobs.html

That 24% includes more employable degrees like CS and engineering, so the liberal arts numbers are certainly even lower.




First of all, I didn't really find any internships that looked like they were going to help me postgrad. Since I was paying my own tuition, 2k a week working construction after overtime looked pretty good. I didn't work construction in place of a job that was going to get me anything worthwhile. And as far as my law job, a lot of people would do anything for this job. It is very laid back compared to what people tell me about biglaw. I know people with my median grades/same school/no connections that are unemployed and wondering what they are going to do with the debt. I'm not saying that there will be cases in which people do find a decent job out of undergrad. But to use opportunity cost with the tone that there is a 40k job coming out of undergrad for everyone (as JDUers love to do) is NTCR.




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