Next month, the 2013 edition of the ABA-LSAC Official Guide to ABA-Approved Law Schools (Official Guide) will hit the Internet (and maybe some store shelves). The Official Guide attempts to provide law school applicants with the “basic information in a simple format that will facilitate comparisons among schools [and] … information intended to help individuals prepare for the rigors and costs associated with attending law school.” (page i) Although many people will find it useful, the 2013 edition of the Official Guide will again omit one crucial piece of information: the average amount of student loan debt recent graduates at each law school have incurred (which says nothing of dropouts).
Instead, the Official Guide will likely give the same generic example it did last year, namely that $100,000 of debt translates to $1,187 per month in a 10-year standard repayment plan (which implies an interest rate of 7.5%). (page 36) This dearth of information creates a few problems for prospective law students, for they need the following information to effectively make the decision about law school:
(1) The amount of debt they can expect to have at graduation
(2) A repayment schedule for each available repayment plan, which for federal loans includes the standard 10-year, extended 25-year, graduated 25-year, 20-year income-based, and 10-year income-contingent (for those lucky enough to work in the nonprofit or government sector) repayment plans
(3) A reliable estimate of their future incomes
Of these, only information about (2), the repayment plans, is readily available for the government loans applicants will probably take on. There is no good three to four-year estimate of graduates’ future incomes (3), and it does not help that the ABA decided against requiring law schools to provide starting salary information in its revised 509 standard. When it comes to future earnings, as always, applicants have nothing to rely on other than law schools’ representations and NALP reports, if they’ve even heard of it.
As to (1), the amount of debt they will have when they graduate, applicants have three sources to turn to: the ABA’s composite debt averages, U.S. News’ debt rankings, and Law School Transparency’s recently publicized calculations. These three sources use different methodologies to calculate the amount of debt graduates can expect to incur by going to law school, so for the sake of clarity this article will evaluate them and calculate law school debt as accurately as possible.
I. ABA “Average Amount Borrowed”
The ABA Section of Legal Education does collect average graduate debt data from each law school. It just doesn’t share it, preferring to aggregate the average amount borrowed at each law school into two composite averages for public and private law schools, a figure that media outlets always incorrectly refer to as the “average amount borrowed” for each student. The ABA publishes the composite here. It recently disclosed the 2011 data. It looks like this:
Readers will note that in 2011, the composite average private law school debt jumped 17.6 percent—more than triple the average growth rate in prior years. The ABA has not explained this unusual jump as it does not track tuition increases. What’s more, in a post on the ABA Journal’s Web site, the ABA claimed that many law schools only submitted their graduates’ annual debt for the 2010-2011 school year, meaning the 2011 figures in the chart above might be even higher than they appear. The ABA’s composites are only helpful when verifying aggregate student loan debt for law students. Until the ABA releases the source data used in the composites, the “Average Amount Borrowed” is not terribly reliable for applicants.
II. U.S. News’ Annual Debt Rankings
When U.S. News releases its law school rankings, the most interesting information lies not in its numeric scorings but in its debt rankings. Law schools voluntarily supply U.S. News with these numbers, which are supposed to be what they also submit to the ABA for its composite, as well as the percentage of graduates who borrowed money to attend law school. Sometimes there are discrepancies between the two, as can be seen when comparing the private school composites for 2011.
For 2011, U.S. News’ composite average private school debt numbers are a little lower than the ABA’s, which suggests U.S. News’ figures might be more accurate. Unfortunately, U.S. News does not have debt numbers for every law school, does not project its estimates into the future, and may exclude interest accrued during law school.
III. Law School Transparency’s Data Clearinghouse
In early May 2012, the consumer advocacy organization, Law School Transparency (LST), added a new feature in its Data Clearinghouse: the total, non-discounted cost of attending law school. LST based its calculations on the tuition rates and living costs available on law schools’ Web sites. Since these numbers are from the 2011-2012 academic year, LST inflated tuition at a 3 percent annual rate and living costs at a 2 percent annual rate to create a projection of how much 2015 and 2016 graduates will owe. These are reasonable assumptions going forward because nominal tuition inflation is likely to slow down from its 4-6 percent annual rate as early as fall 2012.
From its calculations, LST found that the non-discounted cost of attending law school can frequently exceed $200,000, which is noticeably greater than what U.S. News publishes in its debt rankings. The discrepancy is due LST’s decision to include in its calculations debt used to pay for living costs available to students via Grad PLUS loans. In practice, law students do not take on this much debt, and even if they did, if they’re willing to cut costs by commuting from cheaper communities or cohabitating, they can easily reduce their living expenses below what law schools offer them.
How Law School Debt Is Calculated
Attending law school comes with the two primary costs: tuition and fees, and forgone income. To pay for their degrees, students can access two types of federal loans: Direct Unsubsidized Stafford Loans (limit $20,500 per year, interest rate 6.8 percent, fee 1.0 percent) and Direct Grad PLUS Loans (all remaining costs, interest rate 7.9 percent, fee 4 percent). While law students can no longer take out Subsidized Stafford Loans, it’s unlikely they will rely on private loans, unless the terms are better than those offered by Grad PLUS Loans. Graduates have a six-month grace period or deferment option before their loans enter repayment, but interest accrues nonetheless.
Forgone income is very difficult to calculate, but right now it’s quite low due to the low earning power of recent college graduates, who constitute the majority of law school applicants. Forgone income can be characterized as “living costs,” though strictly speaking people probably intend to live and eat even if they don’t go to law school. How much people pay in living expenses, whether law schools’ stated living costs are reliable, and whether one takes out more loans to pay for them complicate the forgone income/living costs calculation.
With these facts in mind, the question becomes how to calculate the amount of debt a law school graduate has by the time repayment begins after the Stafford Loan’s grace period and any Grad PLUS Loan’s deferment has expired. One new tool applicants can use is Georgetown University Law Center’s repayment calculator, but it isn’t very flexible because it doesn’t distinguish between education costs and living costs, and a quick investigation (involving logarithms so I won’t get into it) made me suspect that it underestimates Stafford Loans’ values. Thus, to see how much effort was really necessary, I put together an example of a law degree’s cost that’s accurate to the month and includes loan fees and interest (Note: I ensured that the Grad PLUS Loan covered tuition including the loan fee, even if the example student didn’t use it for living expenses as well). Since we’re talking about it, I used Georgetown as the example, allowing an easy comparison between its calculator’s results and LST’s.
Using LST’s 2011-12 numbers ($46,865 in tuition, $22,895 in living expenses, same annual cost multipliers), for a class of 2015 graduate the total debt comes to $250,237.63, but for tuition alone it’s $173,714.42. Since this estimate is within two percent of LST’s ($254,574) and Georgetown’s ($251,166), I’d say these estimates are accurate enough. Here’s what it looks like:
Readers might want to fiddle with these numbers (omitting living expenses, adding scholarships, or adding in other loans) or challenge my math, so out of my magnanimity I am uploading the spreadsheet that I created to calculate these figures. Also, I added monthly payment calculations for a 25-year loan and a grand total estimate (hint: the net present value of a class of 2015 Georgetown law degree is more than $375,000 without living expenses).
As can be seen, figuring out how much debt someone will incur by going to law school is not an easy to do accurately, and calculating it requires something like Georgetown’s calculator, an estimate such as LST’s, or passable spreadsheet skills and clear knowledge of stated costs, projected tuition/living cost hikes, available loans, fees, and interest rates. Because of these difficulties, it’s truly inexplicable that the ABA would not include in the Official Guide the average amount of debt graduates have, even though it collects these data. Although calculating the cost of legal education is a rigorous accounting exercise, the ABA should make it easier by ensuring applicants know how much debt their predecessors took on.
Matt Leichter is a writer and attorney licensed in Wisconsin and New York, and he holds a master’s in International Affairs from Marquette University. He operates The Law School Tuition Bubble, which archives, chronicles, and analyzes the deteriorating American legal education system. It is also a platform for higher education and student debt reform.