Debt Rule of Thumb Forum

[jingosaur]

So there's a lot of conversation in this sub-forum about how x person shouldn't go to law school because they will have to take out student loan debt, but how much debt is okay to have a green light? From reading anecdotal experiences on this forum, it seems like the line between "that's an okay amount" and "oh my god don't do that" is about equal to the person's expected average starting salary, or a little bit higher, without considering programs like PAYE and LRAP. For example, a lot of people considering T14s and gunning for Biglaw seem to get the "go" when their expected debt at repayment is around $150k-$175k, but once they start getting into the $225k to $275k range, it become less of a feasible option. For people going to flagship regional schools, it seems like once you have to take out more than $60k or so in debt (or 80k-100k for some of the strongest regionals), it becomes a no-go. I'd like to hear some posters' input on where they feel the line is, especially from people who are currently paying off their loans (Full disclosure: I signed my student loans MPN yesterday so this is literally all I can think about).

[ymmv]

The old student debt rule of thumb is really of questionable value when you account for the actual odds of students not getting their desired jobs from most law schools. The "line" depends entirely on what kind of law a person wants to practice, where they want to practice it, how well their school places people in that kind of job, etc.

E.g. sticker may be justifiable for biglaw at Stanford even though that's way above first year SA salary because Stanford students can sort of depend on getting biglaw and sticking it through a few years, but even whether they can last long enough to pay it off is questionable.

OTOH I would not advise an 0L looking at Michigan -> biglaw to take anywhere above $100k, if that, given how much of a crapshoot their odds of obtaining employment are.

PA/PD gunners as another example are in an entirely different boat, and may be justified paying large sums of money at a school like NYU with excellent LRAP in anticipation of loan forgiveness. But even that's highly risky - even if they get their PA position they might decide they hate it yet find themselves trapped there for a decade - and I would like advise them to take a full ride at their flagship regional instead to mitigate risk.

[jingosaur]

The old student debt rule of thumb is really of questionable value when you account for the actual odds of students not getting their desired jobs from most law schools. The "line" depends entirely on what kind of law a person wants to practice, where they want to practice it, how well their school places people in that kind of job, etc.

E.g. sticker may be justifiable for biglaw at Stanford even though that's way above first year SA salary because Stanford students can sort of depend on getting biglaw and sticking it through a few years, but even whether they can last long enough to pay it off is questionable.

OTOH I would not advise an 0L looking at Michigan -> biglaw to take anywhere above $100k, if that, given how much of a crapshoot their odds of obtaining employment are.

PA/PD gunners as another example are in an entirely different boat, and may be justified paying large sums of money at a school like NYU with excellent LRAP in anticipation of loan forgiveness. But even that's highly risky - even if they get their PA position they might decide they hate it yet find themselves trapped there for a decade - and I would like advise them to take a full ride at their flagship regional instead to mitigate risk.

I meant more of a weighted average of expected starting salary even though that's not entirely perfect since risk technically costs money (i.e. a 100% chance of $160k is more valuable than an 80% chance at 200k and a 20% chance of being unemployed).

PI people depending on LRAP/PAYE are in an entirely different ballpark, but if they don't want to depend on LRAP or PAYE, I think the same rule of thumb applies meaning that they shouldn't plan on going more than $50k to $60k or so in debt.

[jbagelboy]

The chances at a high salary alone are no justification for exceeding $180-200K, ever. It needs to be better than that. Implicit in the expectation of $98-102k post-tax salary should be getting pushed out in 3-4 years (after which we see 70%+ attrition). You will take a pay cut at this juncture unless it's a clean lateral, and if your goals include clerking, you will have even less take home during this time. So you have to imagine paying off our debt with reasonable (not feasible on the extremes, but reasonable) CoL prior to being laid off/pushed out/quitting; otherwise you risk being saddled with the loans for many years after your stint at a large firm.

Moreover, the conversation usually isn't "$250K is bad don't go," the intelligent perspective is a little more nuanced: don't take $250k when you could go for $120k by retaking or choosing a different school with similar placement that happened to place in a different slot on a commercial magazine survey that year. These are the folks we target.

Recall that the major complaint over "biglaw" is the pressure created from mounting interest bearing debt, the sensation of being locked in and fear of being let go. For wealthy or debt free students who do not operate under these pressures, the lifestyle seems far more bearable (if still shitty sometimes). Most students from every top school will work at a large firm; keep your debt as low as possible.

[FSK]

The old student debt rule of thumb is really of questionable value when you account for the actual odds of students not getting their desired jobs from most law schools. The "line" depends entirely on what kind of law a person wants to practice, where they want to practice it, how well their school places people in that kind of job, etc.

E.g. sticker may be justifiable for biglaw at Stanford even though that's way above first year SA salary because Stanford students can sort of depend on getting biglaw and sticking it through a few years, but even whether they can last long enough to pay it off is questionable.

OTOH I would not advise an 0L looking at Michigan -> biglaw to take anywhere above $100k, if that, given how much of a crapshoot their odds of obtaining employment are.

PA/PD gunners as another example are in an entirely different boat, and may be justified paying large sums of money at a school like NYU with excellent LRAP in anticipation of loan forgiveness. But even that's highly risky - even if they get their PA position they might decide they hate it yet find themselves trapped there for a decade - and I would like advise them to take a full ride at their flagship regional instead to mitigate risk.

Your discussion of Michigan illustrates how debt averse many law students/lawyers can be. 49% got Large Firms last year, with an additional 8 getting federal clerkships. Essentially, that's a 50/50 shot at big law. If Stanford is worth full price at near 100%, then Michigan logically should be worth half price at 50%. 100K is around 35% of the cost of Michigan.


Student's should do the math themselves, and not rely on the risk preferences of TLS.

[03152016]

people have told me this is overly risk averse
but my rule of thumb is to borrow up to what you can reasonably expect a median student to make a year after graduation, pre-tax
although this has limited utility bc of bimodal salary distribution
i think $150-$160 is prob fine at t14s
i think $50-$60 is prob fine at smaller regionals
not sure how much, say, a UT or UCLA student should take out tho

[jbagelboy]

people have told me this is overly risk averse
but my rule of thumb is to borrow up to what you can reasonably expect a median student to make a year after graduation, pre-tax
although this has limited utility bc of bimodal salary distribution
i think $150-$160 is prob fine at t14s
i think $50-$60 is prob fine at smaller regionals
not sure how much, say, a UT or UCLA student should take out tho

Why not just do an expected value calculation for each school to determine the acceptable debt level based on the OCI success rate, public sector salaries in the region, ect.

[FSK]

people have told me this is overly risk averse
but my rule of thumb is to borrow up to what you can reasonably expect a median student to make a year after graduation, pre-tax
although this has limited utility bc of bimodal salary distribution
i think $150-$160 is prob fine at t14s
i think $50-$60 is prob fine at smaller regionals
not sure how much, say, a UT or UCLA student should take out tho

Why not just do an expected value calculation for each school to determine the acceptable debt level based on the OCI success rate, public sector salaries in the region, ect.

That would be an excellent idea.

[John Everyman]

people have told me this is overly risk averse
but my rule of thumb is to borrow up to what you can reasonably expect a median student to make a year after graduation, pre-tax
although this has limited utility bc of bimodal salary distribution
i think $150-$160 is prob fine at t14s
i think $50-$60 is prob fine at smaller regionals
not sure how much, say, a UT or UCLA student should take out tho

Why not just do an expected value calculation for each school to determine the acceptable debt level based on the OCI success rate, public sector salaries in the region, ect.

That would be an excellent idea.

let us know when you finish it jbagelboy

[ymmv]

The old student debt rule of thumb is really of questionable value when you account for the actual odds of students not getting their desired jobs from most law schools. The "line" depends entirely on what kind of law a person wants to practice, where they want to practice it, how well their school places people in that kind of job, etc.

E.g. sticker may be justifiable for biglaw at Stanford even though that's way above first year SA salary because Stanford students can sort of depend on getting biglaw and sticking it through a few years, but even whether they can last long enough to pay it off is questionable.

OTOH I would not advise an 0L looking at Michigan -> biglaw to take anywhere above $100k, if that, given how much of a crapshoot their odds of obtaining employment are.

PA/PD gunners as another example are in an entirely different boat, and may be justified paying large sums of money at a school like NYU with excellent LRAP in anticipation of loan forgiveness. But even that's highly risky - even if they get their PA position they might decide they hate it yet find themselves trapped there for a decade - and I would like advise them to take a full ride at their flagship regional instead to mitigate risk.

Your discussion of Michigan illustrates how debt averse many law students/lawyers can be. 49% got Large Firms last year, with an additional 8 getting federal clerkships. Essentially, that's a 50/50 shot at big law. If Stanford is worth full price at near 100%, then Michigan logically should be worth half price at 50%. 100K is around 35% of the cost of Michigan.


Student's should do the math themselves, and not rely on the risk preferences of TLS.

That is not a remotely "logical" inference. 50% chance of biglaw also means 50% chance of being fucked up the ass by non-dischargeable loans for the rest of your life . How is this concept so difficult to understand. Stanford with (approaching) 100% chance employment has 0% risk factor on ability to repay. Michigan with 50% employment has 50% risk factor. Risk in this case = greater net loss of utility than the gain from employment because the consequences of the risk are worse than the benefits from the equal chance of employment. And once we get below Michigan to the 20-50% employment zone the calculation gets even more insane.

Yes, applicants need to decide for themselves what 50% chance biglaw-or-ass-fuckage is precisely worth to them in terms of debt, but it is idiotic to infer that it would be exactly 50% sticker value as a matter of mathematical necessity.

[rwhyAn]

One thing I think many prospective students forget to take into account is the interest. $100k in loans turns into, I believe, around $225k on a 25-year plan. I think T14 at sticker turns out to be around $500-600k after interest. Make sure to run the numbers to see what total repayment would be based on best and worst case scenarios. The Georgetown and Michigan loan repayment calculators are really good tools to use.

[TheSpanishMain]

I think the whole "median first year salary" thing is imperfect, but it's a decent rough guess. I don't think I'd ever take on more than 150k in debt to attend a law school, Yale included. Even if you have a (close to) 100% chance of getting BigLaw and being able to make your payments, it still involves a lot of ass pain. That's a personal decision based on how much misery you can tolerate, though.

[jingosaur]

I think the whole "median first year salary" thing is imperfect, but it's a decent rough guess. I don't think I'd ever take on more than 150k in debt to attend a law school, Yale included. Even if you have a (close to) 100% chance of getting BigLaw and being able to make your payments, it still involves a lot of ass pain.

The chances at a high salary alone are no justification for exceeding $180-200K, ever. It needs to be better than that. Implicit in the expectation of $98-102k post-tax salary should be getting pushed out in 3-4 years (after which we see 70%+ attrition). You will take a pay cut at this juncture unless it's a clean lateral, and if your goals include clerking, you will have even less take home during this time. So you have to imagine paying off our debt with reasonable (not feasible on the extremes, but reasonable) CoL prior to being laid off/pushed out/quitting; otherwise you risk being saddled with the loans for many years after your stint at a large firm.

Moreover, the conversation usually isn't "$250K is bad don't go," the intelligent perspective is a little more nuanced: don't take $250k when you could go for $120k by retaking or choosing a different school with similar placement that happened to place in a different slot on a commercial magazine survey that year. These are the folks we target.

Recall that the major complaint over "biglaw" is the pressure created from mounting interest bearing debt, the sensation of being locked in and fear of being let go. For wealthy or debt free students who do not operate under these pressures, the lifestyle seems far more bearable (if still shitty sometimes). Most students from every top school will work at a large firm; keep your debt as low as possible.

Debt higher than $180k at YHS can only happen if your parents have a high expected contribution and refuse to contribute, in which case you have some sort of safety net to fall back on.

As far as the limited lifetime of Biglaw goes, it's definitely something that should be considered. From people that I've talked to, it seems like a lot of people self-select to go PI or Gov't and most of those people either don't have loans or have LRAP programs that will still help them and that route has been their plan since law school (even though leaving the firm the worked at isn't necessarily their decision). People going in-house or moving to smaller firms definitely don't make as much, but my understanding is that the money is still pretty solid and it's not hard to pay down your remaining loans at that point as long as you didn't start with more than $180k or so and paid it down fairly aggressively for 3-4 years. That being said, if you took out in the $225k to $275k range of law school debt, getting pushed out after 3 years could be pretty debilitating because it will still be difficult to pay back your remaining payments on a significantly reduced salary (let's say 100k)

There's evidence on a few scam blogs that people go from Biglaw to Shitlaw and make next to nothing, but other than during the 2011 crash, this is more the exception than the rule. Am I off-base on this?

[brazleton]

.

[TheSpanishMain]

There's evidence on a few scam blogs that people go from Biglaw to Shitlaw and make next to nothing, but other than during the 2011 crash, this is more the exception than the rule. Am I off-base on this?

My sense (and I emphasize I have no firsthand experience here) is that there is a lot of hyperbole and shitty snowflaking (meaning, focusing like a laser beam on exceptionally bad outcomes, even if they're not representative). From what I've heard from friends in Big Law, people who lateral out after a few years tend to do fine money-wise. They do take a pay cut, but they're generally okay with it because it involves more livable hours, and it's not like it's 40k to do divorces or chase ambulances. The money is still pretty solid.

If it were me, my concern would be those years of paying the loans back. I just don't think I could work crazy hours AND have to send a huge chunk of my money to service loans. If I'm going to be working insane hours, I at least want to watch my savings account grow. That way, when you're (probably) forced to move on and take a pay cut, you have a nice little nest egg. I just don't think I could psychologically handle rowing like a galley slave without seeing the rewards. I think I'd go straight nuts. Maybe some people are a little more resilient than I am.

[AllTheLawz]

people have told me this is overly risk averse
but my rule of thumb is to borrow up to what you can reasonably expect a median student to make a year after graduation, pre-tax
although this has limited utility bc of bimodal salary distribution
i think $150-$160 is prob fine at t14s
i think $50-$60 is prob fine at smaller regionals
not sure how much, say, a UT or UCLA student should take out tho

Why not just do an expected value calculation for each school to determine the acceptable debt level based on the OCI success rate, public sector salaries in the region, ect.

That would be an excellent idea.

let us know when you finish it jbagelboy

Expected value isn't really that helpful for widely spread bimodal distributions. Say you are looking at Michigan/Duke where there is roughly a ~50% shot at biglaw and ~50% at a 50k (this 50% number is exaggerated for effect). Expected value here comes to 105k. Awesome. Problem is, if you get the 160k/yr job you can still pay it off as well as someone who took the debt to go to a better school (expected value of 70% chance at biglaw, with 30% chance of 50k is only 127k) and if you end up with the 50k job you are still just as screwed. If you followed this formula you would be giving up a significant placement advantage for an insignificant difference in debt.

For the above reasons I like the basic rule of thumb of 125-160k max debt for the T14 (inclusive of HYS if you plan on private sector), 70-90k max debt for the schools a bit below, and <50k debt for schools that rarely place into biglaw.

[ScottRiqui]

[quote="TheSpanishMain"Even if you have a (close to) 100% chance of getting BigLaw and being able to make your payments, it still involves a lot of ass pain.[/quote]

Yeah, even with a desirable outcome, that's getting pretty close to being a mortgage on a house you'll never live in.

[jbagelboy]

I think the whole "median first year salary" thing is imperfect, but it's a decent rough guess. I don't think I'd ever take on more than 150k in debt to attend a law school, Yale included. Even if you have a (close to) 100% chance of getting BigLaw and being able to make your payments, it still involves a lot of ass pain.

The chances at a high salary alone are no justification for exceeding $180-200K, ever. It needs to be better than that. Implicit in the expectation of $98-102k post-tax salary should be getting pushed out in 3-4 years (after which we see 70%+ attrition). You will take a pay cut at this juncture unless it's a clean lateral, and if your goals include clerking, you will have even less take home during this time. So you have to imagine paying off our debt with reasonable (not feasible on the extremes, but reasonable) CoL prior to being laid off/pushed out/quitting; otherwise you risk being saddled with the loans for many years after your stint at a large firm.

Moreover, the conversation usually isn't "$250K is bad don't go," the intelligent perspective is a little more nuanced: don't take $250k when you could go for $120k by retaking or choosing a different school with similar placement that happened to place in a different slot on a commercial magazine survey that year. These are the folks we target.

Recall that the major complaint over "biglaw" is the pressure created from mounting interest bearing debt, the sensation of being locked in and fear of being let go. For wealthy or debt free students who do not operate under these pressures, the lifestyle seems far more bearable (if still shitty sometimes). Most students from every top school will work at a large firm; keep your debt as low as possible.

Debt higher than $180k at YHS can only happen if your parents have a high expected contribution and refuse to contribute, in which case you have some sort of safety net to fall back on.

As far as the limited lifetime of Biglaw goes, it's definitely something that should be considered. From people that I've talked to, it seems like a lot of people self-select to go PI or Gov't and most of those people either don't have loans or have LRAP programs that will still help them and that route has been their plan since law school (even though leaving the firm the worked at isn't necessarily their decision). People going in-house or moving to smaller firms definitely don't make as much, but my understanding is that the money is still pretty solid and it's not hard to pay down your remaining loans at that point as long as you didn't start with more than $180k or so and paid it down fairly aggressively for 3-4 years. That being said, if you took out in the $225k to $275k range of law school debt, getting pushed out after 3 years could be pretty debilitating because it will still be difficult to pay back your remaining payments on a significantly reduced salary (let's say 100k)

Yeah -- you've effectively repeated what I've said, roughly $180-200k as a maximum for the programs which promise at least three quarters of the class a successful outcome (which is about five schools). I still think you have to consider everything from a relative perspective. $100k debt is still a LOT less pain and suffering over several years than $180k+.

[CFC1524]

Checked Penn's LST page and found the following (I assume this is similar for most of the top 14):

It seems you need close to a full tuition scholarship to finish school with less than 100,000 in debt. To finish with less than 150,000, you probably need around 3/4 tuition. So, going off the discussion above, you probably should be above the 75th percentiles for GPA/LSAT to go a to top 14 (otherwise, you won't get enough $$$)? Does this sound right to everyone? I linked the page below - just wanted to make sure I was reading the graph correctly / the graph was correct. I realize this is kind of off-topic, but I didn't feel like making an entirely new thread for a related question

http://www.lstscorereports.com/schools/penn/costs/2013/

[jingosaur]

Checked Penn's LST page and found the following (I assume this is similar for most of the top 14):

It seems you need close to a full tuition scholarship to finish school with less than 100,000 in debt. To finish with less than 150,000, you probably need around 3/4 tuition. Does this sound right to everyone? I linked the page below - just wanted to make sure I was reading the graph correctly / the graph was correct. I realize this is kind of off-topic, but I didn't feel like making an entirely new thread for a related question

http://www.lstscorereports.com/schools/penn/costs/2013/

Yeah, it sucks. If you take out around $50k in loans per year, you will be at $178,260 in debt at repayment according to the G'town calculator. If the COA at your school is around $80k, you'll need about 30k per year, and cover the COA increases, to hit what most consider the "ceiling". It's pretty fucked up.

[TheSpanishMain]

It sounds about right to me if you're still borrowing to pay your rent, and you're incorporating origination fees and interest. About the only way to be totally debt free would be huge scholarship + working spouse to cover cost of living. Or just have rich parents, I guess.

[jbagelboy]

Checked Penn's LST page and found the following (I assume this is similar for most of the top 14):

It seems you need close to a full tuition scholarship to finish school with less than 100,000 in debt. To finish with less than 150,000, you probably need around 3/4 tuition. So, going off the discussion above, you probably should be above the 75th percentiles for GPA/LSAT to go a to top 14 (otherwise, you won't get enough $$$)? Does this sound right to everyone? I linked the page below - just wanted to make sure I was reading the graph correctly / the graph was correct. I realize this is kind of off-topic, but I didn't feel like making an entirely new thread for a related question

http://www.lstscorereports.com/schools/penn/costs/2013/

If you have zero savings and zero parental support, attending an elite private law school will be a struggle. That's the bottom line. But it's not all bad. A few examples:

A Levy at Penn would leave you very comfortably with $55-60k debt at graduation assuming you don't flush your SA earnings on hookers and blow.
$40k/year scholarship, a generous grant, would land you in the vicinity of $110k in debt. A half tuition scholarship, still very good relatively speaking, means $140k in debt, on a reasonable budget.

$20k/year with no other assistance but no UG debt gets dicey pushing up to $175K. I am thinking this is the limit, at least the limit I would assign for myself and anyone asking an honest opinion. I would not advise attending Penn with less than $20k/year unless parents are helping out significantly.

Edit: and these are very generous figures. Add $15k to the debt totals if you like going out a lot or have an SO, and add a bunch more if you're going PI or fuck up oci

[AllTheLawz]

Checked Penn's LST page and found the following (I assume this is similar for most of the top 14):

It seems you need close to a full tuition scholarship to finish school with less than 100,000 in debt. To finish with less than 150,000, you probably need around 3/4 tuition. So, going off the discussion above, you probably should be above the 75th percentiles for GPA/LSAT to go a to top 14 (otherwise, you won't get enough $$$)? Does this sound right to everyone? I linked the page below - just wanted to make sure I was reading the graph correctly / the graph was correct. I realize this is kind of off-topic, but I didn't feel like making an entirely new thread for a related question

http://www.lstscorereports.com/schools/penn/costs/2013/

Yep. Sounds right to me. Life sucks for all of us without rich parents. It would be hard to justify 210kish debt (assuming 2L SA to cover tuition increases) for any single school. I have about ~152k total UG/LS combined debt and debt payments (~3k/mo for 5 year payoff) put a very serious dent in my monthly budget. With 210k you pretty much have no choice but to do at least a 10-year plan if you don't want to seriously sacrifice QOL.

[Tiago Splitter]

If it were me, my concern would be those years of paying the loans back. I just don't think I could work crazy hours AND have to send a huge chunk of my money to service loans. If I'm going to be working insane hours, I at least want to watch my savings account grow. That way, when you're (probably) forced to move on and take a pay cut, you have a nice little nest egg. I just don't think I could psychologically handle rowing like a galley slave without seeing the rewards. I think I'd go straight nuts. Maybe some people are a little more resilient than I am.

You just gotta PAY-E it down man. Build up those savings so you can peace out any time. And make sure to push for loose Fed policy to turbocharge that inflation rate.