Dean Ricky Revesz recently sent out his annual 8-page plea for more money, but before asking alumni to commit to an annual contribution of $20,000, he first addressed the law school crisis, specifically going into the "economics of attending NYU Law School."
There are more than 200 law schools nationwide, and they vary widely in their approach to education and in the success of their graduates in securing employment. Obviously, I cannot speak to each of these law schools, but I'm confident that attending NYU Law School remains a very strong value proposition for our graduates. Despite the economic downturn, most graduates still take positions at major law firms with starting salaries that enable them to cover even substantial loan payments without significant difficulty, and many others join such firms after a judicial clerkship. I'm confident that we'll continue to do extremely well in this sector because of several advantages: our location in New York, the heart of the big-firm world; our large size, which allows us to offer a deep and wide-ranging curriculum and hands-on professional experience; our expanding offerings in law and business; and our robust alumni network, which now includes many of the leaders--chairs, managing partners, and hiring partners--of the top firms.
[...] So even four years in to the economic crisis, I am comfortable telling admitted students that if they come to NYU the high cost of attending law school will either be manageable (as they pay off their loans with their high private-sector salaries) or will be shouldered by the Law School but not by them (because of LRAP). In this way we address head-on--and I believe compellingly--the value proposition question that has come to dominate recent media discussions about law school.
While Revesz does provide some details about how LRAP works (it's been changed to now require students to go on IBR to qualify), his "economic" discussion is devoid of any economic or financial analysis. Instead it's full of his own personal assurances. How confident and comfortable he is. If only loans could be repaid with the Dean's confidence. So, since he won't do the math, I will:
Mark Kantrowitz, founder of finaid.org, has created a widely adopted rule of thumb for education debt. He advises that you should never take out more debt than your likely starting salary, and should ideally only take out an amount less than half of your likely starting salary. The latter, smaller amount allows you to pursue typical middle-class aspirations, such as home ownership, buying a new car, and being able to responsibly start a family. But, let's assume that NYU grads will be renters, ride the metro, and marriage and kids are a long way off with the 80+ hour weeks they'll be putting in at BigLaw, so the relevant number is the 1:1 ratio of debt to starting salary.
Out of pocket expenses for a class of 2016 student paying full freight at NYU: $280,000. NYU has a total cost of attendance in excess of $75,000 a year, with loan interest and likely increases in tuition and cost of living accounting for the rest of the total. Adding on a bar study loan could take the number up over $290,000.
We're looking at a total cost of attendance that isn't lower than the expected starting salary, but rather $120,000 higher. The total cost of attending NYU is not just higher than starting salaries, it's higher than the salaries of 8th year associates at most BigLaw firms. According to FindLaw, 8th year pay at Skadden is only $250,000. Other BigLaw shops engage in even greater compression. Orrick pays 8th year associates $215,000. Curtis Mallet-Prevost pays $200,000. Fish and Richardson pays them $195,000. And that's if you can even make it to the 8th year. Attrition at large law firms is high, with the typical associate career lasting only 3-5 years, and salaries shrinking as ex-BigLaws tumble down the food chain (hardly anyone laterals up).
Going by the Kantrowitz rule, you should only attend NYU on full debt financing if you are likely to start your career as an income partner at a large law firm.
Putting the rule of thumb aside, let's look at the actual numbers, and just how manageable your loans will be. Using the finaid.org debt calculator, and a blended interest rate of 7.6% (based on the 6.8% Stafford and 7.9% PLUS rates), a debtload of $280,000 on a 10 year repayment scheme will run you $3,340 a month. But, that's only $40,000 a year, right? If you're making $160,000, that's not too bad. ...Except that at high income levels your tax rate skyrockets. Especially in NYC.
Federal income tax will take $38,260. NY State tax takes another $10,640. New York City takes another $5,840. Social Security gets its bite of $6,820 (going with the typical 6.2% rate, not the the temporary 4.2% rate), and Medicare gets $2,320.
That's an after-tax income of $96,120. Still pretty nice, but damn, $40,000 of that going to loans sucks pretty hard. Manageable? Yes. But it's doubtful Dean Revesz realizes that your loan payment will be nearly half of your after-tax income. He probably believes that your $160,000, even after taxes and loan payments, will allow you to comfortably contribute $20,000 to the school's Annual Fund.
Then there's the tiny little detail of your chances of earning $160,000 upon graduation. I'll skip over the percentage of students going in to private practice (51.5%) since that's highly influenced by self-selection. But, let's just note that it's down from a four-year high of 75%, and has been in steady decline in the recession. Most of those grads have been displaced to government and public interest, though the school has also more than doubled its business and industry placement, at 4.9% in 2011, compared to 2.2% in 2008. We're also going to skip over the fact that NYU does not provide any salary data for these business jobs, which may well pay less than what one needs to comfortably manage their debtload. Instead, let's take a look at what graduates in private practice earn.
NYU claims 25th, 50th, and 75th percentile salaries of $160,000, $160,000 and $160,000, and mean private sector salary of $153,000. Doesn't this put the issue to rest? Virtually everyone in private practice from NYU is earning enough to make their giant loan payments manageable, right?
Not so fast. NYU does not disclose how many private sector graduates responded to the salary survey, nor does it break down those responses by size of law firm. The school's NALP report contains this information, but Dean Revesz stubbornly refuses to release all of the school's data. $160,000 salaries are common at NLJ250 firms (starting at about 160 attorneys), though certainly not universal. Cozen, with over 500 attorneys, starts its associates at $130,000. As you go down the size scale, salaries continue to drop. For instance, Beveridge and Diamond (93 attorneys) starts pay at $110,000, Satterlee (60 attorneys) pays $123,000.
What's this got to do with NYU grads? 14.6% of NYU grads who went in to private practice landed at firms with 50 attorneys or fewer. Private practice grads at very large firms (251+) is down from 92.4% in 2008 to 80.83% in 2011. Based on information NYU has released, it is impossible to tell to what degree graduates at smaller firms factored into the salary quartiles and average. The possibility is, of course, they they are disproportionately likely to respond to salary surveys, thus inflating the numbers.
In 2008, only 2.1% of NYU grads went to firms with 50 or fewer attorneys. In 2009, 1.2% did, and in 2010, 4.4% did. The 2011 rate of 14.6% of grads in these firms is unprecedented. Yet, the reported average starting salary is only 1.9% less than the 2010 average, and only 3.4% below the 2008 average. According to Bloomberg Law, average starting salaries for graduates in private practice have dropped 35% since 2009. Starting salaries at large firms tended to stay at $160,000, and the drop is due mostly to that portion of the market shrinking and more grads taking lower paying jobs at small firms.
NYU has seen its small firm placement rate increase 12-fold since 2009, and its very large firm placement drop by 12.6%, but has more or less maintained its average starting salary, while starting salaries everywhere else have taken a dive, due largely to grads placing in smaller firms.
Now, I'm not saying that NYU's published salary data is intentionally covering up a decline in salaries, or that Dean Wilder is aware that his claims about the manageability of an NYU debtload is bupkis. I'm just saying that something is going on, and it rhymes with bananagans.
As an aside, if it looks like I'm jumping to conclusions about something being amiss at NYU, the school has reported inconsistent data on the number of graduates opening solo practices. Again, folks going solo can be largely a factor of very idiotic self-selection. But, at NYU the combined total of grads opening solo shops from 2008 to 2010 was zero. No one did it. So, we can assume that if students start doing it in 2011, it's a sign that they're unable to find work anywhere. NYU's own employment statistics page says that .42% of the 240 grads in private practice opened solo shops; that would be 1 graduate. Perhaps a true self-selection, and not an indication of weak job prospects. According to the ABA's data (which it gets from law schools), 5 graduates were in solo practice (2.1%). This isn't just a typo on NYU's part, as those 4 graduates up in the air are counted under the 2-10 category on their website. Ooops.
And of course, we have to remember that NYU likes to pretend it doesn't know what data its withholding. It hardly deserves a presumption of innocence or good faith.