We investigate the economic value of a law degree and find the opposite: given current tuition levels, the median and even 25th percentile annual earnings premiums justify enrollment.

Bold claim by Simkovic and McIntyre in their Economic Value of a Law Degree article that has been making the rounds. At the 25th percentile, JD holders still have an earning premium of $350,000 over someone who just holds a bachelors degree. And, with law school only costing $30,000 a year (sticker minus scholarship), that looks like quite a nice payout.

If only that's what law school really costs. At 11 schools sticker price is above $50,000. Though to be fair, at the three most expensive schools the majority of students receive a scholarship, with UC-Davis giving 97% of students a break. But, at the fourth most expensive school, Cornell, the majority of students pay sticker. The majority are also paying sticker at Columbia, Penn and Northwestern (where only 34% get a scholarship). There are another 27 schools charging at least $45,000, and another 36 charging more than $40,000. Only 29 schools charged $30,000 or less. These are the rates for 2011-12, so the numbers are undoubtedly already worse, and we all know what direction the numbers are trending in.

Anyone still paying off their student loans also knows that tuition is not the end of the story, there's that nasty beast called interest. And with legislation working its way through Congress, interest rates are about to get considerably higher. It's theoretically possible for the rates to go down since they're tied to 10 year T-bill rate, but for Grad PLUS loans to hit the statutory cap, the T-bill rate needs to only be 4.1%, and in the last 20 years it spent more time over 6% than it did below 4%, so for this analysis, we'll be using the cap.

And remember, the number we're aiming at is the 25th percentile earnings premium: $350,000.

A student paying $150,000 in tuition will take out $61,500 in graduate stafford loans at 9.5% interest and $88,500 at 10.5%. Assuming a 20 year repayment period, and discounting for a 3% rate of inflation, our student will pay $48,546 in interest on the stafford loans, and $82,608 on the PLUS loans.

Our student also needs to pay for room and board. Counting cost of living as a cost of law school is a bit controversial, so we're not going to do that. What we will do though is count the interest paid on debt-financed living expenses. You need a place to live whether you go to law school or not, but if you didn't go you'd presumably be paying out of pocket and not incurring a mountain of debt. If our student takes out $20,000 a year, he'll end up paying $56,000 in interest on that debt.

But wait! There's more! There's also university fees and books. We'll use the average of Harvard and Seton Hall, Simkovic's alma mater and his current employer, respectively. Fees come out to $899 per year, and books are $1313. Assuming no increase over 3 years (har!), that's another $6,636, and an additional $6,194 in interest payments.

We're also assuming that our law student went to undergrad first (Simkovic compares the JD to stopping with a bachelors, so we think this is a pretty fair assumption). That's not a cost of attending law school, but the interest accrued while in law school certainly is. The national average tuition at a private four-year university is $25,000 per year. A student with $100,000 in undergraduate debt at 8.25% will accrue another $15,750 while in law school (again, deducting 3% inflation). That's not the number we'll use though. The average undergrad debt is about $27,000, and with that amount, our law student just accrues $4,253.

Now let's get out our adding machines and do some adding!

$150,000 - Tuition

$48,546 - Grad stafford interest

$82,608 - Grad PLUS interest

$56,000 - Cost of living interest

$6,636 - Books and fees

$6,194 - Books and fees interest

$4,253 - Undergrad interest

**354,237 - Total**

Let's remember the initial claim Simkovic and McIntyre made:

We investigate the economic value of a law degree and find the opposite: given current tuition levels, the median and even 25th percentile annual earnings premiums justify enrollment.

The 25th percentile premium is $350,000, so for someone paying sticker at a school that costs $50,000 a year or more, the 25th percentile earnings premium does **not** justify enrollment.

Fortunately, most of the schools charging that much tend to have employment outcomes that are far above average. Most, not all. Cardozo only has an LST Employment Score of 53.2%, below the national average, and a tuition rate of $51,200 for the 2013-14 school year. Brooklyn has an ES of $48.5% and a 2013-14 tuition of $50,800. New York Law School had an AS of 39.4% and 2012-13 tuition of $49,600 (new tuition has not yet been announced). Chapman has an ES of 33.7% and 2013-14 tuition at $44,400. St. John's has an ES of 49.1%, and a 2013-14 tuition rate of $49,700. Catholic is at 36.6% and $44,000; Loyola Marymount 41.1% and $44,000; Southwestern is 42.6% and $45,200; Hoffstra is 51.2% and $47,000; Pepperdine is 45.5% and $47,000. You get the idea.

But wait! It gets worse! There's this little thing called taxes. According to Simkovic and McIntyre:

For low earners, such as those in the 25th percentile, values should be multiplied by 0.75.

That is, assume a marginal federal income tax rate of 25%, so the earnings premium is really only $262,500. For someone paying the high-end price of $354,000, the 25th percentile outcome represents not a positive return, but a loss of $90,000. Ouch!

In fact, taxes take such a big bite out of the earnings premium that law school starts to be a losing proposition for the 25th percentile not at a tuition rate of $50,000, but at $35,000. So... rah rah law school!

PS: We left out some significant costs associated with law school, such as the $700-1500 students pay for LSAT prep, $165 to take the LSAT, $165 to take the LSAT again, $2,000-4,000 in bar exam prep courses, the $14,000 in interest you have to pay back on your bar loans, $250 to take the bar exam, and $73 to take the MPRE. You probably also need a nicer suit that you'd have used for interviewing with just a bachelors degree. All these little extras can very easily make law school cost an addition $20,000, chipping away at the percentage of students who will see a positive return on their investment.