By Jeena Cho • April 21, 2014•Writers in Residence, Law School, Pre-Law
A reader sent me a Tweet and asked what financial advice I had for returning to law school from full-time employment. She provided the following details about her current financial situation and I went to work crunching numbers. You can see my master spreadsheet here.
Current Financial Situation
- Annual Income: $45,000 (Net: $31,800)
- Employer 401(k) match: 5%
- Potential salary increase: 5% per year
- Current student loan: $5,900 at 6.55% interest
- Credit card: $2,600 at various interest
The reader wants to stay in her current field - disability and health law in public interest. Her expected income with a JD? $60,000 with expected 5% increase per year. There are so many questions to consider in this situation but I decided to limit the analysis to those that I can calculate. Questions like personal or professional satisfaction that may come from working as an attorney can't be calculated so I decided to leave those out of this post.
My goal for this post isn't to say whether going back to school makes financial sense or not. Nor is the goal to say that law school X is the right choice. I wanted to raise the issues and give the analysis without the conclusion, because, well, that's your call. So, here we go.
Full Time or Part Time?
The first obvious question is whether to attend school full time or part time. On her current salary, she estimates she'll be able to contribute $1,000 per month ($12,000 per year) towards school costs if she continues to work.
I randomly searched for a school in New York City area (where the reader lives) for a school that offered both a full time and a part time program. I chose Fordham University for this example. As an aside, I was surprised at the moderate tuition difference between first tier and third tier schools. For example, Fordham is ranked 36 according to US News at $50,370 per year vs. Hofstra University at $49,780, which is ranked 135. The tuition for part time program at Fordham is $38,316. The other school I added into this equation is University at Buffalo (UB).
I included UB in this calculation because it's a public law school. The tuition difference is huge. Tuition at UB is less than half at $21,970. In the interest of full disclosure, I graduated from UB. I think it's a great value.
I didn't include the cost of living or books in this calculation. Here's the difference between UB, Fordham full time and Fordham part time program. The last column reflects the cost of the part time program with the $1,000 contribution. If we're strictly going by the most cost effective school, UB is the clear winner. Of course, there are many other factors, including scholarships, opportunity for internship/externships, and having to live in freezing cold weather for 3 years.
Earning & Saving Potential
The next thing I wanted to look at is the increase in potential earning between keeping her current job (earning $45,000) and her expected income. She estimates her starting income will be $60,000. For this calculation, I used $65,000 because she won't actually start practicing law for 3 - 5 years so I increased it based on inflation. The other factor to consider is the loss of income for the years that she won't be working, assuming she's going to school full time.
As you can see from this calculation, with the loss of income in years 1 - 4, at the 10 year mark, she will earn more if she stays at her current job than if she works as a lawyer. Even at the 20 year mark, the difference between staying at the current job and working as an attorney is $168,000. Of course, working full time during law school will result in the most income since there's no loss of income during the time she's in law school.
I am mindful of the fact that it's rare for anyone to keep a job for 20 years and most likely, she'll have fluctuation in her income in the next two decades. So, take this calculation as a very rough projection.
The other calculation I included (in the last column) is the 401(k) contribution. Her employer matches up to 5%, so the amount she contributes is half of the amount listed but she gets 10%. In this calculation, she would have contributed $75,556.65 but have $151,113.29. What a great deal!
Income projected for 20 years at current job.
Income projected for 20 years as attorney going to school full time.
Income projected for 20 years as attorney going to school part time.
Student Loan Calculation
The maximum Federal loan for graduate school is $138,500 with a maximum annual amount of $20,500. In this calculation, I determined the amount of Federal and private loan, assuming she has to finance her entire tuition. Again, this doesn't include cost of living, books, etc and it also doesn't include any scholarships she may receive.
Next, I calculated the monthly payment based on 10 and 20 years of repayment. I used this handy loan calculator to crunch these numbers.
Assuming the writer nets 60% of her income ($65,000 * .6), her take-home pay will be $39,000 per year or $3,250 per month. If she attends Fordham and chooses the 20 year repayment plan, her monthly student loan will be 36% of her net take-home pay.
What about Loan Forgiveness?
This reader wants to stay in the public sector, which may qualify her for Federal loan forgiveness. According to the rules, she must make 120 consecutive "qualifying" payments. (See details here.) I used the numbers above for Fordham full-time program ($61,500 Federal and $88,500) and plugged it into this repayment estimator.
Her best bet, assuming she stays in the public sector and wants to qualify for the loan forgiveness program will be to sign up for the Pay as You Earn. She may be able to have 40 months of payments forgiven (160 scheduled payments - 120 qualifying payments). Pay as You Earn adjusts each year. According to the calculator, her initial payment will be $396 and will rise to $652 as her income increases.
Now, I want to hear from you - dear readers. What advice, suggestions do you have for this reader on the decision to go back to law school from full time job? Is there a calculation I've missed? I love to hear from you!
Jeena Cho is a San Francisco bankruptcy attorney with JC Law Group PC. She is passionate about personal finance education. She’s working on her second book, The Anxious Lawyer for the ABA. Jeena also teaches classes on Mindfulness and Meditation for Lawyers. You can email her at email@example.com or follow her on Twitter @jeena_cho.