As a former financial advisor, I used to tell clients that it was important to understand any investment they were purchasing – how much they were comfortable putting in, the potential return on their investment based on the information we had at hand, the risks involved, and whether they could describe the investment to anyone that asked in plain language.
A legal education is one of the most expensive investments you will likely make in your lifetime, so it’s just as important to enter the journey with your eyes wide open. Collect information on how much you will actually pay for law school and how you plan to fund it. Then, research salary information for the legal field(s) you might be interested in and compare your total borrowing (or amount paid) to your first-year salary for a return-on-investment (ROI) proxy. You can then use this ROI to compare school offers in a quantifiable way.
Total net cost after scholarships and grants and starting compensation are the two main “levers” in the ROI equation. Let’s break down these two variables.
Projected Investment: Your Net Cost
According to ABA 509 Data on 2022 student expenses, the average cost of attendance for public law school residents was a little over $52,000, while private school was closer to $80,000. When this annual cost is multiplied by three and often inflated year-to-year, the average borrowing for law school easily drifts into six-figures. In fact, the 2021 American Bar Association (ABA) Young Lawyers Division Student Loan Survey found an average total amount of debt of $130,000 for law school and undergrad borrowing.
Of course, institutional (and external) scholarships can offset this price tag, so it’s important to pay close attention to all institutional application deadlines and explore other external scholarship opportunities as well. Federal loans are usually the next stop, which you gain access to by filling out the Free Application for Federal Student Aid (FAFSA) every year.
Law students have access to $20,500 in federal Direct Unsubsidized Loans each year (up to aggregate limits) and can borrow up to the cost of attendance minus scholarship and other aid in Direct Grad PLUS loans as well. Interest rates for new loans are set each year and are fixed for the life of the loans.
Private student loans can be considered as a final resort for any additional funding needed, provided your total financial aid doesn’t exceed your cost of attendance, but interest rates are set on credit history and these products can require a co-signer. There are also fewer repayment flexibilities after graduation for private loans versus federal loans.
You can work with financial aid and use student loan calculators to project total borrowing and inform the “investment” piece of your return-on-investment. Your investment will then be the total of whatever you actually have to pay using cash, savings, or loans throughout law school.
Comparing financial aid award offers can come down to understanding how what you’re being offered compares across schools and how your total investment will match up to potential pay and benefits after graduation.
Potential Return: Your Starting Salary and Benefits
For up-to-date statistical information and research on legal salaries and compensation, the National Association for Law Placement (NALP) is a good first stop. Look up the latest data on private and public sector salaries and salary distribution curves. Remember to key in on first-year salaries to crunch your numbers.
For example, NALP’s 2023 Associate Salary Survey report shows that the overall median first-year associate base salary was $200,000 as of January 1, 2023. At the same time, new public service attorney salary figures remain considerably lower. This obviously dramatically impacts the difference in ROI of these career trajectories, so it doesn’t make sense to compare the two unless you are making a career decision based solely on the numbers alone. Use the ROI comparison to compare offers in the same field or career path for a more practical application. And remember, those pursuing public interest careers have Public Service Loan Forgiveness to lean on, a factor that enables these lawyers to accept a lower ROI initially for the benefit of tax-free federal loan forgiveness after 10 years.
Don’t forget to include benefits when projecting total compensation. Benefits packages can include access to employer-sponsored retirement plans, profit-sharing, medical and dental coverage, group life and disability insurance, wellness benefits, and more. These perks can increase the total value of your compensation by as much as 25% to 40%, so consider them in your overall picture. For a new lawyer making a $75,000 gross salary, that’s a total compensation of $105,000 (adding 40% value in benefits).
Optimizing ROI
If your total investment in law school is the average borrowing figure of $130,000, and you have a projected starting compensation value of $105,000, that’s a first-year ROI of about 81% ($105,000 divided by $130,000). A new Biglaw associate could potentially have a first-year ROI of over 100%, while other fields will have much lower estimates. Remember this is just a proxy and not an exact science. And the number only really helps when compared to offers from schools moving you toward a similar career (income) trajectory.
Knowing these variables means you can take proactive steps to optimize your ROI as you make your way through law school. Decrease your total investment through merit and external scholarships. Increase your potential starting compensation by networking, summer internships, and conducting informational interviews with legal professionals in your desired field.
While you shouldn’t get too worried about the exact numbers, entering law school with at least an idea of your projected investment and post-graduation compensation will only inform your decisions now – reducing stress in the long run.
Disclaimer: Examples provided in this article are for informational purposes only and are not intended as investment, tax, or legal advice. You should consider whether the information is appropriate for your unique needs, and where applicable, seek individualized advice from a professional advisor.
