Tuesday, October 6, 2009

Paying for Law School 1: How Much Does Law School Really Cost?

How much law school really costs is often not clear to potential law students.  In fact, most potential law students underestimate the cost of law school by tens of thousands of dollars.  However, the cost of law school and paying back the loans is a major financial aspect for most new lawyers.  Prospective law students need to have a clearer understanding of their true cost.  Let's take a look at some actual numbers and find out where people are making their mistakes.
Let's use the University of Pennsylvania Law School for this example - many other law schools are similarly priced.

If we visit their website, the breakdown of costs that is provided to us is as follows:

University Fee
Technology Fee
Academic Subtotal:
Room & Board
Clothing, laundry, personal expenses, medical insurance
Support Subtotal:

OK, so to an average undergrad considering law school it looks like PennLaw costs about $65K/year, so they multiply that by three to get a total cost for law school of about $197K. 

That sure seems nice and logical, but it probably considerably underestimates the cost of law school by at least $50K.  Here are several factors that are usually missed when considering cost and typically add up to tens of thousands of dollars.  As you will see below, these factors impact all law schools, not just PennLaw.

  1. The cost of tuition increases yearly, and by a substantial percentage in recent years.  Although not all law schools will sock you with the 16% yearly tuition increase my law school socked me with, here are the actual statistics compiled by the ABA with regard to yearly tuition increases.  You can see that private law schools have been increasing tuition at a rate of about 7%/year and public law schools have been increasing tuition at a rate of about 9%/year.  Further, the rate of tuition increase is expected to increase. 
  2. The numbers provided by the law school's website are last year's numbers - your first year's tuition will be increased - by 7% or 9% on average.
  3. Law schools often project ridiculously low room and board numbers - unless they are actually offering you the opportunity to stay in their dorms at the indicated price, don't trust them.  For example, my law school was using about 10K/year as projected living expenses, but one bedroom apartments in the area were renting for around $2000/month!  (This was on the east coast.)  I ended up renting a single, small room in the attic of a home nearby - and it still cost about 6K for the year!  Also, although I only bought the "required" books, my total book expenditure exceeded the budget every semeter I was in law school.  Law schools vary widely in how accurate their projections are, but to be on the safe side from a budgeting standpoint it would be reasonable to increase the budget numbers by 25%.
  4. Yep, the cost of room and board increases every year as well.  Also, the budget uses last year's numbers.  However, a yearly increase of about 4% may be reasonable here.
  5. Our hypothetical law student will be taking out loans during his first year, but will not be graduating for 2 more years.  Further, although a small fraction of the law student's loans are likely to be subsidized (thank you subsizded Staffords!), the majority of the loans will not be subsizided.  Today, a student can borrow up to $20,500 through the stafford program, of which $8500 is subdized. Consequently, the loans that the law student takes out in his first year will be accumulating interest for at least two more years before the law student can even think of paying them back.
  6. Although the interest rate on federal student loans is a fairly reasonably 6.8%, the student can only borrow up to $20,500/year through the federal program.  Consequently, the remaining loans (in fact the majority of the loans) must be paid for using private loans which carry a considerably higher interest rate - or may carry a variable APR rate.  Although variable rate loans may be reasonably priced right now due to the abnormally low LIBOR and fed rates, the more typical experience (and indeed my experience) is that private student loans are typically about 3% higher than federal loans.  We will assume that private loans carry an interest rate of about 9% - much better than the 11.25% rate I had on my private loans.
 So let's take a look at how these factors actually impact the total cost for law school.
  1. First, let's calculate the tuition and fees part.  Let's apply the more conservative 7%/year increase for private schools.  Thus, we take last year's total above of $46,514 and project the actual tuition and fees for our experience to be $49,773, $52,257, and $56,965 for a total of $158,995
  2. Second, we take the $19,096 budget for room and board and increase it by 25% to $23,870.  Next, we apply our inflationary increases of 4% while remembering that the budget above recites last year's numbers.  Thus, we project the cost to be $24,824, $25,818, and 26,850, for a total of $77,492. Adding up the total tuition and support costs above yields $236,487 - an increase of nearly $40,000 from our original estimate - and we haven't even added the effect of interest!
  3. With regard to interest payment, let's assume that the law student is coming straight from undergrad and is paying the full bill themselves using loans.  The total cost for the first year (remember, we have to use our projected numbers calculated above) is $49,773 for tuition and $24,824 for support for a total of $74,597.  Of that, $20,500 will be Staffords - considering the subsidized and unsibsided portions, the average interest rate is anout 4%.  However, the remainder of the need amount (about $54,100) must be paid for using private loans at about 9%.
  4. Additionally, as far as timing, remember that the full amount of the loans have been disbursed by January 1st at the start of the second semester to pay tuition, yet repayment typically does not begin until the student gets their first paycheck on about October 1 after the third year.  Consequently, the loans taken out for the first year accumulate interest for about 33 months before payment begins, the loans taken out for the second year accumulate interest for about 21 months, and the loans taken out for the third year accumulate interest for about 9 months.
  5. Thus, for the loans taken out during the first year, the accumulated interest is about:  4%*20500*33/12 + 9%*54100*33/12 = $15,645 similarly, the loans taken out during the second year have accumulated interest of 4%*20500*21/12 + 9%*57575*21/12 = $10,503.  Finally, the third year's interest is 4%*20500*9/12+9%*63315*9/12 = $4,889.  This yields total accumulated interest of $31,037. 
Consequently, we see that our law student is really going to be looking at a loan balance of $267,524 when payback begins ($236,487 in total tuition and support and $31,037 in interest).  This is about $70,000 more than the $197K she was originally estimating - an increase of about 36%.  Consequently, we see that the potential law student's estimate of the cost of law school was significantly low.

Further, we note that at the point that repayment begins, the law student's debt is increasing at about $18,000/year.  That's about $1,500/month.  To put it another way, the first $1,500 that the law student puts toward their loans each month only goes to pay off interest and does not even touch the priniciple.  Yikes.

Finally, I acknowledge that the student may be able to get a job and get some income while attending law school.  However, I note that: 1) most law school jobs pay around minimum wage (say, $8/hour), so even if a law student works 20 hours/week, then they have only earned $8,000 for the year, 2) students are discouraged from having a job during their first year in law school, and 3) only a small percentage of law students get the lucrative summer positions with a large firm - for the rest, working at a minimum wage job during the summer may bring in $2-3K.  I freely admit that any income that the law student receives may help to offset the costs above.  However, I think that we can agree that in most situations the cost offset is not going to be significant on a percentage basis.


  1. Wow. I wish I had read this before I graduated with over $100K in student debt.

    Where were you in 2004??

  2. Sorry I didn't get the word out sooner, but it's really only been the last few years that law school tuitions have really gotten ridiculous - especially in light of the decrease in high paying jobs.

    Best of luck!

  3. Seriously, this is important information that is not being provided to college students or their parents (who really should have this information when their kids are in high school and can be encouraged to seek out better college degrees, like science). Thanks for the wake up call. Certainly going to do my part to discourage my kids from going to law school (particularly with the over saturation in the market these days).

  4. I wouldn't interpret any of this to discourage my children from going to law school. I think the author's point is to know what you are getting into.

    I would pick law over science any day of the week.

  5. 5:23 and 7:38 - My main purpose is just to be sure that potential law students have the facts in an unvarnished way (maybe a little on the less-rosey side to counter the wildly optimistic message that they get from other sources.) If a certain student makes the decision to go to law school, then more power to them. That being said, to me it does appear that the supply and demand is out of balance with certain areas of practice - especially in this economy. Also, the reflexive decision to go to law school that it seems a lot of students are making does really needs to be evaluated in light of their personal situations.

  6. MP:

    Take a lot at this article. Underneath the hystrionics is a serious question that isn't being addressed.


  7. 9:01 - Thanks for the link to the article! I like the article for it's informativeness! However, I think that law schools have themselves pretty insulated from a fraud allegation and much of the issue is due to unrealistic expectations fueled by media reporting of extremes. Instead of putting a lot of work into going after the law schools, maybe we can just act to publicize the real numbers so that students can hear more than just a sales pitch and have greater clarity about what they are getting into.

  8. MP:

    I don't think it will do any good. Have you ever read any of what's being posted over at Top Law Schools? It's both hilarious and deeply, deeply disturbing.

    Most of what's there is coming from very unenlightened people. Whenever anyone tries to provide a counter-argument to the wisdom of attending law school, that person is then attacked and devoured like fresh meat surrounded by starving vultures.

    Here's an example:


    There is far worse on that place. Most of the people on that site have such a high emotional investment in their delusions of what law school and the legal profession are about that if you point out simple realities, they pound you with ad hominems and infantile responses until it's no longer worth responding.

  9. I love how you call it as "sales pitch" as if a prospective lawstudent is buying a car and not deciding on a career for the rest of their lives. Maybe that's the problem. These kids are not realizing that law school is a "sales pitch" and its for a product that they can't return in 3 days after buyer's remorse. They will be saddled with huge debt for a good chunk of their lives, if not all.

    One's life career should not be the subject of a "sales pitch." You don't see medical schools or other graduate programs advertising nearly as much as you do law schools.

  10. 12:16 - Wow, checking out the website comments, they certainly do have an emotional investment. They need to realize that just wanting something to be a certain way does not make it that way in reality.

  11. 12:37 - Yep, I agree that prospective students should be more aware that law school's marketing materials are really a sales pitch. However, with regard to marketing in other fields, I actually see MORE marketing with regard to the MBA - and for even LESS value. My perception is that the hyper-marketing started with the MBA and has now spread to the law degree.

  12. MP:

    This about more than just naive and deluded future and current law students. The distortions in the legal education industry are having, and will continue to have, a largely negative effect on the ability of those they ensnare to lead productive lives. And it's not just the students who suffer; society as a whole suffers when you have improper distributions of resources. More bluntly, the incredible amounts of loans these people are taking/carrying will have a negative effect on our more productive members of society and our government.

    I don't think it's incorrect to say that what's is happening and continues to happen in the legal education industry is a true market failure and one the cries out for government intervention. Why in hell anyone is allowed to open more law schools in this country is beyond all rational thought.

  13. 2:43 - Good comment. With regard to opening more law schools, I think that the ABA feels that it would be vulnerable to anti-trust prosecution if it attempted to limit the number of law schools or law students at a particular school. From what I can see from an initial analysis, it seems like their fear of exposure has a certain degree of legitimacy. However, they could approach the Justice Department and try to get a no-sue committment from them but, the Justice Department might not want to get involved.

    One thing that could be done is that congress could create a statutory exemption for law school regulation, but that is a pretty major issue and many law schools would lobby against it.

    I agree that it seems like we are not allocating our resources as efficiently as possible as a society. Even Scalia can see that some of the best minds may be wasted on law - http://abovethelaw.com/2009/10/justice_antonin_scalia_says_th.php

  14. These numbers are mind boggling.

    I still remember the day years ago when I fully committed to attending my state law school. It was the day I received my suggested loan package from a higher ranked private school with 40k+ in loans for 1L year. 65k+ is utterly crazy in this market.

    A high percentage of students entering law school now are 1) never going to be able to pay their loans off, or 2) have their ability to raise a family/buy a home crippled for decades.

    This talk about a lost generation isn't hyperbole.

  15. This site is absolutely fantastic - I wish I had this 4 years ago before going to law school.

    Once thing you're forgetting is opportunity cost. The student is foregoing the opportunity to make money had he not gone to law school. I had a lot of friends at my law school who left their 50k jobs to go to law school. Even after taxes, the additional cost was $100k+

  16. 1:27 - You are right, I left out the opportunity cost - and the oppportunity cost can be very large. However, it is highly variable and I don't have any solid data to model it. The common thought is that you go to law school and then work for a few years and that eventually you will be in a better financial position by going to law school. This is absolutely untrue in many cases. I also wonder just how many years it takes to reach the break-even point in even the agerage scenario. My gut feel is at least 10 years.

  17. This is 1:27 again. Wouldn't we have to pay for living expenses anyway? So you can't really count this as cost (unless it is impliedly in the opportunity cost).

    I still agree with you that it isn't nearly worth the cost. Moving costs, books (including commercial outlines/flashcards/etc), and the increased living costs in San Francisco really hurt.

    Also can't forget about the bar preparation courses if the student doesn't land a big firm that will pay for it. That's another 3k minimum.

  18. Benjamin/1:27 - I can see the confusion with regard to opportunity cost. You note correctly that the cost of living expenses is already included in the total value of loans that you would have to take out. If the opportunity cost were equal to that number, then you would be right that the opportunity cost is already included in the calculation.

    However, take the example of someone making $50/year who goes back to law school. Let's say that his living expenses were $35K/year (and that his living expenses remain constant when he goes to law school), he was saving $15K/year, and that his salary was going up by 4%/year. Well, the total cost to this person to attend law school is not just the law school price tag - even including the cost of living. This person is also missing out on the $15K/year that he was saving, as well as the 4%/year salary increases.

    So the total cost (or loss) to him personally of attending law school is the total cost that we identified above, plus the lost salary income, plus the lost salary increases.

    I did not include thses costs because they are typically highly variable with a person's specific situation. However, they are real costs that a person should consider in addition to the law school "price tag" above.