Edu Debt Influences Job Choice

In my (lengthy) post the other day about The Profitability Problem, I cited some average education debt amounts from memory because I couldn't recall where I saw them.

Just found it on Ernie Svenson's blog and my numbers were actually a little conservative.

"About 80 percent of law school students obtain loans to pay for law school, and the average loan debt is $76,763 for private law school graduates and $48,910 for public school graduates."

The Law.com article Ernie points to (that I just now read) further supports my assertion about the state of the profession:

"While law school costs have exploded, associate compensation has not. According to the National Association for Law Placement (NALP), the median salary for first-year associates in private practice in 2004 was $80,000, the last year that figures for comparison were available. The 2004 number represents a 60 percent increase over the median salary in 1990, which was $50,000.

"Between 1990 and 2004, inflation totaled 45 percent, which means that in 2004 an associate would have needed a salary of $72,400 to have the same earning power of $50,000 in 1990, regardless of the much greater law school costs."

More....

"Even at the nation's biggest firms -- those with more than 501 attorneys -- salaries in 2004, which averaged $125,000 (not including bonuses), have risen just 78 percent since 1990, compared with the 267 percent increase in the cost of public in-state education and the 130 percent escalation in private law school education.

"There's a major concern," Sebert said. "If you graduate with average private law school debt and earn something other than the average salary, you are going to have trouble."

"The prognosis also is bleak for new attorneys in smaller firms, who typically earn much less than those at large firms. The median salary for first-year associates in firms with 26 to 50 attorneys was $65,000 in 2004, just 44 percent more than the median salary at those firms in 1990, which was $45,000. Beginning lawyers at law firms with two to 10 lawyers earned $48,000 in 2004, compared with $30,000 in 1990."

And finally....

DEBT INFLUENCES JOB CHOICE

The effect of burdensome student loans on the legal profession is a subject that NALP currently is grappling with, said executive director James Leipold. His group is planning a summit next year with other legal organizations that will explore the ramifications to the legal community of ballooning law school costs and debt. Anecdotally, however, he said that more graduates are entering big-firm practices with the "deliberately stated goal" of paying down debt and then leaving.

So perhaps NALP and firms will conclude that the legal profession should price more similarly to the medical profession. (You have to know how much I hate using HC as an example because of what insurance has done to cloud transparency of how much we are actually paying for what.)

Just look at the fact that you don't pay for the amount of time the doc spends with you, but for all the collective wisdom and tools of their expensive education and environment in which they operate (ha! no pun intended).

Law or accounting...think about it. In most cases, you offer a lot more value than just your hour.

Every hour is NOT equal.

Some hours are rather unproductive. But, in another mere hour, you can provide life altering advice. When you do, isn't it worth more than a few hundred dollars?!

Comments

[Dave Rachford]

So True - you're touching on the VALUE PRICING issue -

I myself have been frustrated when I billed Hourly vs. Value Style on big jobs that save clients THOUSANDS...

I'll get in over my head if the conversation goes to economics, but it's certainly worth having.... I'm sure very few accountants feel they earn what they think they're worth!
Dave

[Andy Havens]

Don't want to get too deep down into the rabbit hole here, but there is one element you're missing in this equation. Salary is an ongoing, yearly income, whereas law school is a one-time, fixed cost. So while the cost of law school has risen more quickly than associate salaries, it would have to be an ongoing, yearly expense for it to be as large a problem as described. Since many more students are going into law these days, many specifically because it is a career with large earnings potential, you have a "sellers' market" in terms of the credentials necessary to become a lawyer. But you'd have to not only take into account inflation, but ammortize the cost of the law school degree over the career of the attorney to really see if the increased education debt is truly greater now than 15 years ago.

Not that it ain't a problem. Both greed (the idea that getting into a profession chiefly for the financial reward, with no real thought of what else is involved) and the billable hour vs. value proposition are both driving costs into the business, which drive up fees, which drive up salaries, which drives up the cost of entry.

I'd shed a tear for the poor associates, but if you compare their educational debt to what most docs pay vs. their salaries -- or most teachers or nurses -- they've got no complaints. It's a well-paying career for many who pay attention and play the game well. Not that it's not a hard job... but there are lots harder that don't pay as well and, frankly, are spending more time (as a profession) figruing out ways to drive costs out of the system.

[Jack Yan]

Andy, as one of my old law school buddies said, ‘It’s a good way to make a living. Just not a great way.’ To Michelle and Dave: I agree that the hourly rate can be deceptive. These days, since I don’t practise law, I serve as an expert witness. In some cases, I save the client’s butt with my testimony. While we mightn’t make the thousands we might deserve, I hope we can at least earn some karmic points.