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Monday, August 29, 2011

A Snapshot of Law Student Debt that Every 1L (and Law Professor) Should See

Brian Tamanaha

Average law school debt in 2010 was $68,827 for graduates from public schools and $106,249 from private schools. That is in addition to whatever undergraduate debt they might have accumulated. Remember, these are averages: many law students have debt in excess of $200,000. Here is a list of the twenty two law schools with the highest average indebtedness for the class of 2010 (among graduates who had debt):
1. California Western: $145,621 (88 percent of the class);
2. Thomas Jefferson: $137,352 (95 percent);
3. Southwestern: $136,569 (79 percent);
4. American: $136,121 (84 percent);
5. Catholic (D.C.): $134,133 (91 percent);
6. Golden Gate: $132,895 (89 percent);
7. Northwestern: $132,685 (69 percent);
8. Loyola Marymount: $132,267 (85 percent);
9. Charleston: $128,571 (84 percent);
10. Pacific (McGeorge): $128,495 (93 percent);
11. Chicago: $127,997 (84 percent);
12. Vermont: $127,914 (93 percent);
13. Columbia: 126,945 (77 percent);
14. Cornell: $126,000 (80 percent);
15. John Marshall: $125,806 (74 percent);
16. Touro: $125,481 (94 percent);
17. New York University: $125,169 (80 percent);
18. Pepperdine: $125,114 (82 percent);
19. San Francisco: $124,982 (76 percent);
20. Albany: $124,271 (88 percent);
21. Roger Williams: $123,338 (88 percent);
22. Atlanta's John Marshall: $123,025 (96 percent).
In total, graduates of 88 law schools, private and public, had debt in excess of $100,000 (with typically between mid-eighty to mid-ninety percent of the class in debt). A nationwide 2010 survey found that almost one third of law students expected to graduate with debt above $120,000.

Let's assume a newly minted graduate wishes to pay that $120,000 off in the standard 10 year term, and let's assume a consolidated loan rate of 7.25 percent (combining Stafford and GradPlus loans). The loan payment due each month will be $1,408. The student loan site I used to make this calculation, FinAid, advises: "It is estimated that you will need an annual salary of at least $169,057.20 to be able to afford to repay this loan....If you use 15% of your gross monthly income to repay the loan, you will need an annual salary of only $112,704.80, but you may experience some financial difficulty.This corresponds to a debt-to-income ratio of 1.1."

As an alternative, the graduate can pay back the loan over 30 years, which would allow a more manageable monthly loan payment of $818 (paying nearly $300,000 in total, retiring the debt at the ripe age of 55-60). FinAid says: "It is estimated that you will need an annual salary of at least $98,233.20 to be able to afford to repay this loan....If you use 15% of your gross monthly income to repay the loan, you will need an annual salary of only $65,488.80, but you may experience some financial difficulty.This corresponds to a debt-to-income ratio of 1.8."

Now take a look at the above list (all with average debt above $120,000) and contemplate how many law graduates can expect to earn enough to pay off their debt within 10 years, or even 30 years. Keep in mind that, according to NALP, only 64 percent of the class of 2010 secured full time lawyer jobs, with a median salary of $63,000.

For at least a half-dozen law schools on the above list, and probably more, it is fair to surmise, a majority of graduates will obtain jobs that pay less than $60,000 (with a significant number who will not find legal jobs at all). Many, many graduates face "financial difficulty." Their best way out is resort to Income Based Repayment--a federal program which allows students who qualify to pay lower monthly amounts and forgives the unpaid balance after 25 years (at taxpayer expense). That might sound like a deal, but another way to look at it is that for the bulk of their legal careers their income level qualifies them as suffering from financial hardship. Graduates who work in public service jobs will have the unpaid remainder of their loan forgiven after 10 years.

You might think that over time their debt payments will become easier to manage because their pay will increase. That will be true for some, but not for many. According to the Bureau of Labor Statistics, "In May 2008, the median annual wages of all wage-and-salaried lawyers were $110,590. The middle half of the occupation earned between $74,980 and $163,320." These numbers suggest that, at least among "wage-and-salaried lawyers," many will continue to experience difficulty paying down a $120,000 loan well into their careers.

New first-year students, 45,000 strong, are streaming into law schools around the country this week. If you know any, please send them a link to this post. (I'm sending it to all of my students.) Attending law school can be the right decision for students with a strong desire to become a lawyer. However, students who are attending law school mainly because they are unemployed and think a law degree will provide them with better opportunities down the line must seriously consider the economic consequences of taking on law school debt.

Comments:

Might a case be made for a 13th Amendment violation or is the servitude voluntary?
 

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What's the justification for looking at "average" (I assume mean?) debt combined with only looking at the mean among those who have nonzero debt? That method would seem to skew the data up significantly, without being good support for claims about how "most" students will end up.

I just can't see the benefit of this version of the numbers. Why not look at the median debt among all students?
 

Something else to consider: For anyone thinking of practicing public interest law, in say a legal aid or public defender's office, the expected salary is probably at most $35-40K to start. Not much of an incentive.

The only good news is that federal loans can be deferred for a few years due to financial hardship if you're not making a salary sufficient for repayment - at least they were when I was working for legal aid. (I went to a state school and still came out with almost 100K in loans.)
 

Andrew,

That is how US News compiles the debt numbers.

It makes sense to leave out students without debt if you are trying to get a picture of the magnitude of the burden carried by students who do have debt.

Contrary to what you suggest, this still provides and accurate picture of the situation of "most" students because, as the numbers show, at most schools between 85 and 95 percent of the class are in debt.

Brian
 

Your salary figure (median of $63,000) is in the first year out of law school. If we are talking about repayment of loans over a 10-year or (especially) a 30-year period, it would seem to me useful to know projected income over the life of the loan. $1,408 the first month out of law school is likely to eat up more income than $1,408 in the 120th month out.
 

Jason,

That information is hard to come by. One recent source is After JD II, which compiled income five years after graduation. These numbers are pre-recession, so things might have changed (and this includes only those who responded to the survey).

The (median of the) average income (salary and bonuses) of graduates by school rank: Top 10: $162,000; Top 11-20: $107,000; Top 21-50: $108,000; Top 51-100: $92,000; Tier 3: $92,000; Tier 4: $83,000.

What these numbers suggest is that law graduates from all over (except the top 10 schools) will continue to experience financial difficulty, at least half way through the 10 year term.

I'll add something to the text to make this point.

Thanks,

Brian
 

Brian,

The problem is that by excluding the students who have no debt from the debt calculations but not from the salary calculations, you're skewing the data to make the situation look worse than it is. There's likely a strong correlation between low levels of debt (or no debt) and low salaries, because students who have no debt are more likely to be willing to take lower paying, more enjoyable jobs over 80 hour work weeks.

Also, by comparing mean debt to median salary you're creating a skew. There are going to be values in both debt and salary (especially salary) which are significantly higher than the rest. Taking the mean with debt allows those high values to drive it up, while taking median salaries effectively ignores the high outliers.
 

I should add: there's something to be said for working with the best data available. But the limits of that data for analysis should be explicitly acknowledged.
 

As the top two are in San Diego County, where I live, I can attest from hearing directly from those schools' graduates that they are not making more than $50,000 after two years out, and are well over $100K in debts from law school.

My advice has been to my high school son's friends: Unless you get into a top 50 law school, and can get scholarships, you should be wary of going to law school at all. It's simply not worth it. You have to also really, really, really want to be a lawyer, and get to that third "really" before you take the LSAT.
 

Pretty-much all schools require students to become indebted in order to attend and students don't see many options. They're probably right. Government loans have probably made the situation worse instead of better.

And we're not just talking about "education" here -- we're talking about job training. We have shifted the burden (and risk) of training from the employer to the potential employee.

There are still a few trades where you can get a job through a union and be paid a lower wage while you learn without risking eternal indebtedness, but these apprenticeships are rare.

The current situation is quite sickening. The federal debt that legislators go on about and say (incorrectly) that we're leaving to our grandchildren is a non-issue, while the private debts being accumulated are a real problem that will lead to the impoverishment of many at the expense of the few.
 

i always find it instructive to compare law school and medical school. medical schools turn away tens of thousands qualified candidates each year purely to keep specialist's salaries high, while law schools probably accept tens of thousands poor candidates each year purely for their tuition money.

both situations persist despite the negative consequences.

who gave doctors and law schools rent seeking monopolies?
 

There's likely a strong correlation between low levels of debt (or no debt) and low salaries, because students who have no debt are more likely to be willing to take lower paying, more enjoyable jobs over 80 hour work weeks.

My experience is the opposite. Students at Chicago who were able to pay their own way were also the students whose families had sufficient connections to get them high-paying positions out of the gate. Mills may be old school, but that doesn't mean the elite sectors of society have elected not to use their influence.
 

My comment (1st) on this post was a tad tongue in cheek. But consider this Washington Monthly blog post:

http://www.washingtonmonthly.com/college_guide/blog/getting_out_of_student_loans.php

by David Luzer titled "Getting Out of Student Loans" which generally cannot be accomplished by means of bankruptcy. I assume that students taking these loans since bankruptcy law was changed are made aware of this. Is there a comparison to be made with subprime mortgage loans? If there is a student loan bubble, it would seem to be much smaller than the housing bubble. Is there a risk of servitude faced by such students? Perhaps some bright lawyer with huge student loans might assert !3th Amendment protection. Might what began voluntary become involuntary? No longer are there debtors' prisons. But perhaps the student loan lenders can augment non-discharability in bankruptcy with a version of the "Scarlet Letter" for adultery: a branding of "SL".
 

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And then there's a school like Massachusetts School of Law which allows working class people to get a legal education at reasonable cost but is still being denied ABA certification while Regents Law School turns out criminals like Goodling but gets the cert.
 

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