Law Students

For What It?s Worth

By Jorge the Accountant

[EDITOR'S NOTE: We're pleased to welcome our good friend Jorge to the blog with this excellent post about perspective about law school and your legal career.]

There has been more then enough talk about this being the worst job market in 50 years and the evils of amassing debt for overpriced legal educations. This post brings the debate back to center.

I graduated undergrad in the spring of 1992. That year was also a horrendous job market. Despite coming off a successful summer internship with a Fortune 500 company, I was not rehired as promised. For the next two years I bounced around between jobs until finally landing something that resembled a start to a career.

It was not long before it became harshly apparent that a graduate degree was required before I would advance from the cubicle to the top-floor offices.  I decided that I would obtain my CPA license instead of getting an MBA.  It was cheaper, faster, and more importantly started showing up as a prerequisite for jobs I was interested in getting.

My next big realization came when I learned that all the CPAs were either getting more licenses, more graduate degrees, or, more commonly, both.  In fact, you can’t even advance in the federal government without a graduate degree. Granted, the federal government does not care what the degree is in; you just better have it.

I came to a conclusion: it was not IF I needed a graduate degree, it was what kind I was going to get. I could not stomach the idea of paying $150,000 for an MBA to gain a body of knowledge I consider common sense.  A law degree on the other hand, would open a world of opportunity.

Upon deciding to enter law school, like any good CPA, I ran the numbers.  I estimated that I would incur $150,000 of debt in exchange for the potential to immediately increase my current pay by $30,000.  Using a 7.5% average interest rate on student loan debt, I capitalized the $30,000 future income stream and come up with $400,000 (that’s $30,000 divided by 7.5%).  Using fast math, I immediately realized that the law degree was well worth it.  If I assume an increase of $50,000 in my pay, it’s even more of a no-brainer.

Since most of you are starting out at zero salary, this little exercise in the high finance will work for you too.  Assuming the worst case scenario, I expect most of you will get a job starting at $60,000.  If I capitalize $60,000 by 7.5% the resulting value of that cash-flow stream is $800,000.  Granted, my analysis excludes the impact of income taxes, but let’s keep it simple for now.

You see, I play the Game of Life with my son. It took him one game to figure out he needed to go into debt to get a college degree so that by the end of the game he would have more money than the mechanic. It took him three games to figure out that Doctors and Lawyers receive limitless pay raises, while CPAs are capped.

Is the Game of Life tough right now? You bet.  But the alternative to law school, or any other graduate school means you are destined to a cubicle for the rest of your life, in other words you are broke.  You might land a job faster without a law degree; that’s because McDonalds is always hiring.  But you won’t end the game with the most money.  Keep your chin up students, this too shall pass. And when it does, there will be plenty of work, and plenty of money to pay off your debt.

Full post as published by Fight The Hypo on August 31, 2009 (boomark / email).