Boats, prepare to be rocked. University of Louisville Law Dean Jim Chen has published a paper, A Degree of Practical Wisdom: The Ratio of Educational Debt to Income as a Basic Measurement of Law School Graduates’ Economic Viability, providing a whole lot of math about educational debt, and then a simplified version for the unmathy law crowd:
If you want to be able to pay off your loans while still eating a meal every day, your salary needs to be the size of your law school debt. (Chen actually says that it needs to be three times the size of one year's costs, but it occurred to us that law school is three years, so we simplified the numbers.) If you want to be able to own a home, you need to earn twice that.
A student who holds standard, middle-class expectations in contemporary American culture would probably find it reasonable, at an absolute minimum, to pause and think before incurring a level of debt that forecloses future homeownership.
This... this makes a lot of sense.
Chen takes a look at the typical Louisville grad. In-state tuition is $16,500, so he gives us a rather reasonable amount of $50,000 of student loan debt upon graduation, half the national average. He then adds on a fairly typical amount of undergraduate debt, $25,000, giving a total debt load at graduation of $75,000.
Chen also provides three normal starting incomes for Louisville law grads, $36,000, $48,000, and $60,000, for public sector lawyers, grads employed in non-law business positions, and lawyers employed in private practice. So, even at the high mark, a Louisville grad earns only 80% of what he needs to comfortably service his loans. He earns 40% of what he will need if he wants to buy a house. 40%. Forty. Per. Cent. If his income were to double, it would not be enough.
Mark Kantrowitz, founder of finaid.org, suggests this “rule of thumb”: educational debt should never exceed starting annual salary. Ideally, Mr. Kantrowitz advises, debt should be no more than half of the borrower’s annual salary after graduation.
No more than half? So, if you want to be a public defender, and start with $25,000 of undegraduate debt, you should give up your hopes of becoming a public defender.
Now, let's turn away from the football deficient state of Kentucky, and turn towards New York. BL1Y's expenses at NYU, to be precise. Combining some extremely high tuition, a high cost of living, bar loans, and subtracting $25,000 of scholarship money, BL1Y graduates with $185,000 in debt, all from law school (no undergrad).
Using Kantrowitz's rule of never taking on more debt than your starting salary, and BL1Y's starting salary being the high end market rate of $160,000, BL1Y ought to go ahead and kill himself.
If we look at Kantrowitz's ideal level of only taking on half your starting salary in debt, BL1Y would need to have found a job that paid first years $370,000. 7th year associates in Big Law earn $250,000-$280,000.
So, if you're paying full freight and taking on this level of debt, you need to make sure that your starting position, fresh out of law school, is as a Big Law income partner. Of course, the market is not trending towards starting law grads out as partners. The partnership route is in fact being pushed further and further down the road, with attrition rates well over 90%, putting even that $250,000 paycheck out of reach for most. According to Forbes, the median mid-career salary for an NYU graduate is $204,000.
Dean Chen's paper will appear in the William Mitchell Law Review.
