Law.com has a very interesting article this morning on the rising costs of law school tuition. Coincidentally, the article compares 2004 rates to tuition rates in 1990, the year I started law school. According to the article, in-state tuition at public law schools has risen 267 percent since 1990. Out-of-state tuition has risen 197 percent, and private tuition has risen 130 percent. In isolation, these numbers may seem innocuous or frightening. But, law school tuition is an investment that should have a positive return, so we should ask what the return is on this investment.
According to the article, the median salary for first-year associates in private practice is $80,000, up from $50,000 in 1990. This increase is just ahead of inflation, which would put the 1990 salary at $72,400 in 2004 dollars. Yikes. So, a student making a $3,236 x 3 years investment in 1990 (in-state tuition) would have made a median return on that investment of $50,000 x years worked, adjusted for raises, etc. (Coincidentally, that is almost exactly how much I paid for my law school education.) Now, a student will make an $11,860 x 3 years investment and have a median return of $80,000 x years worked, adjusted for raises. Out-of-state or private tuition would require a greater up-front investment.
So, what's the answer? why doesn't the market recognize this and result in fewer students going to law school? It could be that some students are making a really poor investment choice, depending on the cost of their chosen law school and the expected return on that investment given their school. Of course the other factor that determines the return is whether the student is above the median or below the median, which may correlate to grades. Type A personalities drawn to apply to law schools may not be in the habit of using a median or a mean to calculate their individual cost/benefit but instead may use the highest starting salary of top graduates. The median starting salary at 500+ attorney firms is $125,000. However, the same salary at medium firms is $65,000 and at small firms is $48,000 Public interest jobs have an expected return of $36,656.
So, students may just be making poor choices based on mistaken imputs to their cost-benefit analysis. However, we don't know what the opportunity cost of that investment is. If invested in a different degree, would the outlook be rosier? If invested in a nice stock portfolio? Law school may not be a bet that is sure to win, but it may be the best game in town.
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1. Posted by wingsandvodka on February 1, 2006 @ 8:43 | Permalink
I'd be all for the stock portfolio option, if only someone would have been willing to give me $18,500 a year in deferable, low-interest loans without the hassle of going to law school.
2. Posted by Christine on February 1, 2006 @ 9:19 | Permalink
I saw this on TV -- just get a credit card with no interest for a year. . . .buy stock on margin. . . .
3. Posted by Christine on February 1, 2006 @ 9:20 | Permalink
I saw this on TV -- just get a credit card with no interest for a year. . . .buy stock on margin. . . .
4. Posted by No on February 1, 2006 @ 12:08 | Permalink
Starting salary isn't a very helpful data point - something like average salary at 10 years out would be a better proxy for lifetime earnings, and for comparison against other "investments".
5. Posted by Robert Schwartz on February 1, 2006 @ 12:58 | Permalink
You also need to factor in the foregone income from a full time job for those 3 years and the career progress you might have made. Also the salary data you are looking at has regional biases. the 500 lawyer firms are mostly in high cost of living areas whereas the smaller firms are spread out more across the country.
In any of these analyses, the null hypothesis must be that any gains to additional time in school will be competed away.
6. Posted by Nicole Black on February 1, 2006 @ 14:54 | Permalink
It's become an uphill battle to make ends meet, even for those with advanced degrees. We'd better get used to the fact that we're not going to be able to live in the manner to which many of us were accustomed when we were young.
It's even worse once you factor in daycare expenses when you reach that stage of life. They pretty much eat up an entire income, and you're still faced with mortgage payments, student loan payments, car payments, etc., most of which come out of the only income left after childcare is paid for.
It's easy to see how so many people get into debt up to their eyeballs. If you're faced with large student loan payments, you've got to figure out a budget and stick to it, or your debt can spiral out of control unbelieveably quickly.
7. Posted by Michael Guttentag on February 1, 2006 @ 15:00 | Permalink
Is it really true that “law school tuition should be an investment that has a positive return”? Work consumes such a large amount of our time, wouldn’t the better advice be to make a choice of profession primarily on a non-economic basis? How do you justify being a law school professor on an economic basis?
8. Posted by Christine on February 1, 2006 @ 16:00 | Permalink
Michael is right that the expected salary is not the only factor in deciding whether to make the investment. (Funny that we needed an economist to bring that to our attention!) Obviously, law professors make less than we could in the private sector. However, that point could also go the other way. Although one could say that an investment in law school tuition is worthwhile because it enables me to spend my life working in a job that I enjoy instead of a job that I don't, I'm not sure if we should make an assumption that the investment will have positive "uneconomic" benefits. As many bloggers have pointed to in the last few weeks, surveys seem to present a less than rosy picture of attorney satisfaction.
But, my law professor salary still reflects a pretty good return on my investment of $1500/semester at Texas.
And Robert is right, that any cost/benefit analysis has to be done on the individual law school market level, taking into account geography, etc.
9. Posted by Ted on February 1, 2006 @ 16:31 | Permalink
You also have to look at other opportunity costs. It could just be that college students in 2005 have lower expected rates of return than college students in 1990 across the board, and the law school returns reflect this.
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