Law school | return on your investment | student debt | student loans | debt repayment

What is the Return on Investment for Law School?

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Will law school really provide a good return on your investment? Six years after graduating from law school, I'm more in debt than ever. Yup, after making payments for six years I owe approximately $60k more than I did when I graduated. Isn't interest grand?

Anyway, while I may have left the practice of law, I did work in a job that utilized my degree for four years. So why am I seeing such a negative return on my law school investment? Is it just me? Or does law school just not provide the best return on investment?

The Goal of Education Should be a Positive ROI

​The goal of going to college or any other higher level of learning is to improve yourself and your earning ability. If you are paying for something, you want to see a return on that payment. Education is supposed to be an investment in your future. 

This should be true even when you have to take out student loans to  pay for that education. The idea is that eventually you will see a positive return on your investment. You'll earn more than you would had you not gone to school. And overtime you want and should in a perfect world see your investment grow.

So what about those of us seeing our investment grow in the wrong direction? Is there a particular reason for this?​


When You Graduated Matters

Timing is everything in life and personally, I got screwed timing wise. It doesn't mean I'm precluded from seeing a positive return on my law school investment. It just means I'm starting at a bit of a disadvantage. I graduated college in 2008 the height of the recession. Then I finished law school in 2011 just in time for the recession to finally hit the legal market. ​

Graduating into a recession means you see a large loss in initial earnings that can take up to ten years to overcome. ​You are dealing with difficulty finding a job. Additionally, because the market is saturated with people looking for jobs, employers know that you will accept a lower salary. This takes a lot more effort to overcome later on. Particularly if a new employer is aware of how much you made at your previous job.

When it comes to law school grads, there is a sad but true joke, go to law school, rack up debt, make $62k a year. Now for a lot of careers $62k may be good money, but when you are $150k in debt it's really not great. 

The Cost of Law School

Now, you could argue that part of the problem is where law students chose to go to school. Since some schools are of course more expensive than others. However, the overall cost of law school even for public law schools is still high.​ The average cost of tuition for an in-state public law school is over $26,000 and could be as high as $56,000 per year. That is after and in addition to already paying for a four year degree. 

However, where you go to law school matters. A top tier school may cost more but it can also lead to a higher income after graduation. So faulting someone for where they chose to go to law school isn't entirely fair either. You try to go to the best school you can get into to give yourself the best opportunities come graduation.

Starting Salaries

We've talked about the cost of attending law school, now it's time to take a look at how much attorney's make. It's probably not as much as you think. While starting salaries have certainly increased since I graduated, for 2015 graduates the median private sector salary was just over $68,000.​

However, once law school is over, you think you'd be done incurring debt for your profession. You'd be wrong. There is also the cost of the bar exam and any bar exam study courses you want to take, plus the cost of continuing education and regular bar dues. Sure some employers will help to cover the cost of CLE and annual bar dues, but not always.

While the starting salary is low compared to the amount of debt incurred, lawyers can just like any other profession expect to see their income grow over time.​ According to the Department of Labor the average salary of all attorney's is $118,000 per year. 

Let Me Do Some Math for You​

Let's assume you graduate law school with ​$108,000 of debt ($78,000 to cover tuition and fees + $30,000 to help cover living expenses). Let's also assume an interest rate of 6.5%.

​You are average, so your starting salary is $68,300. Your take home pay, after taxes is about $49,000 or $4,083 per month. 

The standard repayment plan on your student loans would require a monthly payment of ​$1,226. But, you would qualify for REPAYE with a monthly payment of $418.

However, to ensure your loan balance doesn't continue to grow, you would need to make a monthly payment of at least $585 to cover the interest that accrues each month. Otherwise you will see the balance of your loans growing.

Assuming your salary continues to increase, you would eventually get out from under all the debt but it would take a long time and things would (unless you paid extra) get worse before they got better. 

The ROI on Going to Law School is Debatable

If you graduate from a top tier law school and make the big bucks right out of school you would very likely see a positive return on your investment within ten years depending on how you choose to manage your finances.

However if you are average from a lower tier law school, it could be a very long time before you ever saw a positive return on your degree, if you ever did. Obviously there are a lot of factors to consider, where you went to school, when you entered the market, and your starting salary. This doesn't even touch on the forgiveness programs that are offered for working in the public sector.

Whether or not you'll see a positive return on your investment in law school depends a lot salary, timing, and where you went to school but it also depends a great deal on who you are, where you are, and what you choose to do with that degree.

Wrapping it Up with a Bow on Top

Overall, if you graduate middle of the pack from a middle of the pack law school, you could very well end up seeing a negative return on your investment in law school. It's not to say it's impossible to see a positive return, it will just take longer and require more work.​

Money tools & resources i recommend

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Qoins (for debt repayment) When you sign up for Qoins, you connect your bank account and then spend as you normally would. Qoins will round up your purchases to the nearest dollar and put that change towards an extra debt payment. Learn more on How Qoins Can Help You Pay Off Debt Faster

SoFi (for refinancing) If you have private loans or your debt to income ratio allows, consider refinancing with a company like SoFi. Learn more about what it's like to refinance with Sofi. Refinancing my bar loan with SoFi ended up saving me over $1,000. Use my link to refinance your student loan and you'll get a $100 bonus.

YNAB (for budgeting)There are tons of budgeting tools and apps, I turned to YNAB and finally got my budget under control. When, I became self-employed and had to figure out budgeting with an irregular income. I once again turned to YNAB and have finally gotten back on track, not to mention I LOVE all the new updates. If you want to check it out YNAB offers a free 34 day trial so you actually have time to figure out if you like it and if it will work well for you.

Education is supposed to be an investment in your future. However, with the high-cost, law school may not provide the best return on your investment.

Liz

Liz is a writer for hire, specializing in personal finance, entrepreneurship, and legal issues. She shares her own journey to debt freedom and helps graduates dealing with above average student loan debt on her site, Less Debt More Wine. She currently resides in NC after calling Massachusetts home for nearly a decade.

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MWM @MyWealthManifesto - July 17, 2017

I saw a topic about this recently. Their thesis was basically if you’re not going to go to a top tier school and be at least top 30%ish or be top 5% at a mid tier school you may not want to bother with law school at all. They cited bunches of figures about law grads not using their law degree and sometimes not even using their bachelors.

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    Liz - July 17, 2017

    That sounds about right, though they may be dismissing those that open their own firms and do well. I know quite a few people who have found success that way even though they graduated at the worst possible time.

    Reply
Matt - July 13, 2017

That was a really interesting post. I’d imagine, much of the salary for a lawyer varies by state and city, too? I know some people making $150-$200k/year in Los Angeles. However, that’s also Los Angeles. And we all know how bad rent/housing is in that city (it’s bad).

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