Georgetown’s law school has put a very useful calculator on the internet, that allows prospective law students to calculate how much debt they are likely to accumulate by the time they graduate, and what their monthly loan payments will look like afterwards. It also includes a calculation of what students who qualify for the school’s LRAP program will pay. (Georgetown has moved to a model in which the school requires LRAP-eligible graduates to enroll in the federal government’s Income-Based Repayment program. Depending on the graduate’s income, Georgetown will then make some or all of the graduate’s IBR payments. This appears to be the new wave in LRAP: for example, Michigan, Virginia, and UCLA have enacted similar programs).
It’s easy for prospective students to overlook – indeed I’ve tended to overlook this myself – that the current financial structure of legal education, which is based on students taking out high interest (6.8% Stafford and 7.9% GRADPLUS) loans, ensures that the actual debt loads of graduates will be, by the time they graduate, nearly 20% higher than the principal on the loans those graduates took out. This is because interest on these loans begins to accumulate as soon as they are disbursed. The GULC calculator makes this easy to see, and the results, when combined with information it provides regarding repayment options, are startling.
Let’s look at three hypothetical law students, who will be enrolling at three different law schools this fall. Kim will be attending a low-cost institution: a state law school with low resident tuition, for which Kim qualifies, and a low cost of living. Kim’s cost of attendance for her first year will be $35,000. This represents roughly what the typical COA for state residents will be this fall at the less expensive public law schools, such as the Universities of Alabama, Florida, and Georgia.
Lamar will be attending a law school with what will be an average cost of attendance this fall, i.e., about $50,000. This represents the typical COA at the cheapest private law schools, as well as the cost for state residents at some of the more expensive (but not the most expensive) public law schools. Schools that will have a COA in this range this fall include the University of Texas, the University of Colorado, and the Thomas M. Cooley School of Law.
Meanwhile Khloe will be attending an expensive law school in a high-cost city. She will pay $75,000. Schools that will have a COA in this range this fall include Berkeley (for California residents; non-residents will pay about $80,000), George Washington, Cardozo, and New York Law School.
Now let’s look at what these prices will add up to for the graduating class of 2015. We’ll assume Kim, Lamar, and Khloe are borrowing the cost of attendance courtesy of U.S. taxpayers, and that the COA at their law schools sees only cost of living increases during their attendance. (Until this year this would have been an unduly optimistic projection, but there are growing signs that even university administrators are coming to understand that law school tuition can’t continue to rise in real dollar terms).
Kim will graduate with a total law school debt of $122,434. If she opts to pay this off via the standard ten-year repayment option, she will make 120 payments of $1,441, meaning that she will end up paying $172,931 for her law degree in the decade after graduating. If she opts for the government’s extended 25-year repayment plan she’ll be sending in her final $889 check in the fall of 2040, after having paid a total of $266,849 for what is one of the least expensive legal educations obtainable at an ABA-accredited law school in A.D. 2012, at least in terms of advertised prices (about which more shortly).
Lamar will conclude his moderately-priced legal education with a total law school debt load of $177,896. He’ll either be paying $2,112 per month for ten years ($253,480 total) or $1,315 per month for 25 years ($394,373 total).
As for Khloe, she will owe $270,572 at graduation, and will be paying $3,231 per month for ten years, or $2,023 per month until 2040. In the latter case, she will have obtained her law degree at what according to Dean Christopher Edley is now the minimum price at which a “first-rate” legal education can be provided, that is, $606,913 over 25 years. (Note that none of these figures take into account opportunity cost.)
Now consider these prices in the context of what lawyers in America actually earn. Despite their best efforts ABA law schools were only able to confirm that 20.8% of their 2010 graduates had acquired salaries of as much as $63,000 per year by the winter of 2011. It’s a highly problematic question whether such a salary justifies the debt load generated by borrowing the cost of attendance at the least expensive law schools, given that the latter figure nearly doubles the 80th percentile of salary for the class of 2010.
By contrast, it’s easy to answer whether these salary figures come close to justifying the cost of “moderately priced” -- let alone expensive -- law schools: it would be an understatement to say they do not.
(As for the projected long-term earning potential of people with law degrees, keep in mind that roughly half of the practicing lawyers in America are sole practitioners, while seven out of ten work for firms of less than 20 attorneys. Furthermore there’s evidence that the long-term earnings of attorneys have been deteriorating for at least two decades now).
One consequence of all this is, as prospective law students and their families ever-so slowly come to appreciate that the advertised price of law school has now come to be in no kind of rational relationship whatsoever with the net present value of a law degree, law schools are being forced to offer increasingly steep discounts on that price. That development will be the subject of my next post.