The Economics of Law School

Good for law schools, good for the universities they subsidize, but... perhaps not so good for students.

For years, it made economic sense for smart, ambitious 22-year-olds to pay the escalating price for a legal diploma. Law schools have had a monopolist’s hold on the keys to corporate lawyerdom, which pays graduates six-figure salaries.

But borrowing $150,000 or more is now a vastly riskier proposition given the scarcity of Big Law jobs. Of course, that scarcity hasn’t been priced into the cost of law school. How come? In part, it’s because schools have managed to convey the impression that those jobs aren’t very scarce.

Law schools don't want students to understand the realities of the job market, because if prospective students understand that they will be borrowing well into the six figures to enter a job market in which most of them will earn salaries in a range similar to what they would have earned without the law degree, they'll consider other options. I expect that the long-term financial picture for law graduates remains better than the short-term, but if you don't get a job with a sufficient salary during your early years of practice and leave the field you'll get less, perhaps none, of that long-term benefit.

New York Law School's dean defended reporting a median graduate salary of $160,000 for 2009 alums to U.S. News and World Report,

He noted that the school takes the over-and-above step of posting more granular salary data on its Web site.

“In these materials and in our conversations with students and applicants,” he wrote, “we explicitly tell them that most graduates find work in small to medium firms at salaries between $35,000 and $75,000.”

On their website? I found this quite easily, but it suggests that the 41.5% of grads entering private practice earn "$35,000–$160,000" with an average of "$107,343", and the 26.5% entering "corporate/business" earn "$50,000–$150,000" with an average of "$86,667". If I were to extrapolate from the average salaries reported, I could reasonably infer that (including graduates entering fields such as judicial clerkships that involve a short-term sacrifice in salary in exchange for an anticipated income boost after the clerkship ends) the average graduate was earning just about $90,000 per year.

I also found this via Google, and the (not exactly front-and-center) statement:

The salary range for law graduates varies greatly. [For salary stats, visit: www.nyls.edu/employmentstats.] Large law firms offer the highest salaries, and in recent years their starting salaries were between $145,000 and $160,000. These are the highest paying entry level jobs for lawyers and, not surprisingly, the most difficult to obtain. Typically only the very highest ranked students in the class obtain these jobs....

A recent study of New York Law School alumni who graduated between two and four years ago showed their salary increases in their second and third jobs. First salaries in the $40,000 to $60,000 range were the most common (46 percent), but that shifted with the graduates’ second and third jobs to the least common (20 percent). At the same time, salaries in the $60,000 to $90,000 range grew from 22.5 percent to 35.5 percent. Salaries in the range above $90,000 grew from 26 percent to 40 percent. All of these job changes occurred within four years of graduation.

I found this article via Paul Campos, who is quoted in the article,

“I’m 100 percent convinced that Matasar believes in his reformist agenda,” says Paul F. Campos, a professor at the University of Colorado at Boulder School of Law and a Future Ed attendee. “But all reformers discover that they can’t change a system by themselves. And by trying to survive in the current structure, he has ended up participating in the perpetuation of its most indefensible elements.”

Is he talking about law schools... or Congress? Alas, he's talking about human nature. At LGM, Campos adds some thoughts:

One result of these trends [in tuition] is that the 84% of 2010 UM Law grads who borrowed money during law school graduated with an average debt of $112,133. (That class matriculated when tuition was nearly $10,000 per year lower, so the entering class of 2011 is likely to average close to $150,000 in law school debt when it graduates three years from now)....

All this has been taking place at a time when the number of jobs for law graduates whose salaries justify six-figure debt loads has dropped sharply. Meanwhile, legal academia has barely begun to grapple seriously with the issue of who (other than independently wealthy people and partners of well-paid spouses) is going to be able to afford to take public interest legal jobs, the vast majority of which pay salaries that will not allow today’s average law school graduates to service their educational debts while at the same time paying for even a modest life style. (Note that the figures on law school indebtedness do not include undergraduate or consumer debt).

Law professor salaries are, of course, higher than ever.