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Law Dean Pens Paper on Law School Debt and Financial Viability
Per the December 12th law.com article, “Law school, a ticket to economic security? Better run the numbers”, University of Louisville Louis D. Brandeis School of Law Dean Jim Chen is skeptical.
In an academic paper, “A Degree of Practical Wisdom: The Ratio of Educational Debt to Income as a Basic Measurement of Law School Graduate’s Economic Viability,” Chen uses an example of qualifying for a home loan while paying off student debt as a means of determining if a legal education makes economic sense.
Per Chen, law students are too highly focused on the high salaries that are most oft reported, from select schools’ graduates. Too frequently, the long term financial picture, including bankrolling their education, is not thoroughly investigated.
Chen was quoted as saying: “There is obviously a lot more that goes into the decision to attend law school, but you look around the world right now and everyone is paying attention to debt-to-income ratios. I wanted to offer some guidance to people contemplating law school.”
By utilizing the debt standards as established by mortgage providers as a guideline, Chen came to the conclusion that law graduates have to earn three times their law school tuition per year to obtain what he calls “adequate” financial viability. This is based on the assumption that students borrow only the exact amount of money they need for law school tuition, and that they do not have any additional debt – which, in most cases, is simply not true.
Therefore, graduates of relatively low-cost schools charging annual tuition of $16,000 would need to earn $48,000; graduates of schools charging $32,000 would need to earn $96,000; and graduates of schools charging $48,000 would need to earn $144,000.
To maintain a “good” level of financial viability — meaning they could easily secure loans and would be very financially secure — graduates must earn six times their annual tuition, Chen calculated, per the article. That means graduates of $16,000-a-year schools would need to earn $96,000; graduates of $32,000 schools would need to earn $192,000; and graduates of $48,000 schools would need to earn $288,000.
To maintain “marginal” financial viability, graduates of $16,000-a-year schools would need to earn at least $32,000; graduates of $32,000 schools would need to earn $64,000; and graduates of $48,000 schools would need to earn $96,000.
Per the National Association of Law Placement, new law graduates earn, on average, $68,500. Based on this statistic, this means a great number of them would not be able to purchase a home and repay their loans, according to Chen’s analysis. Lenders tend to be wary of educational debt that represents over 8 percent to 12 percent of the borrower’s monthly gross income, Chen wrote.
Chen is quoted as saying: “I was trying to think of a simple way to capture some of the growing discomfort over the economics of the decision to attend law school. At a bare minimum, you should not borrow so much money that you can’t afford a house.”
The paper is scheduled to be published in a future edition of the William Mitchell Law Review.