Law School Debt Gets Uglier for Law School Students in the Last Decade: A Debt-Reduction Checklist for Law School Applicants

On Friday the 13th, it’s appropriate to blog about something not entirely cheerful.  The Hartford Business Journal reports that from “2001 to 2010, the average amount borrowed annually by law students for their three-year degrees increased 50 percent…This past academic year, law students borrowed an average of $68,827 for public educations and $106,249 for private educations,” “far [outpacing] the rate of inflation.”  As a rough way to think about this, it means that well over half of average law school tuition is debt-financed.

It’s a little worse than that, actually, since the average numbers include those who don’t need to take out extensive loans, or those who receive merit-based financial aid.  If you’re not in either of those groups, you’ll have to take out a lot more debt.  And unless you receive merit-based aid, whatever savings you have are likely to be depleted.  Undergraduate debt, which has been growing steadily, is also airbrushed from this picture.

The sobering debt numbers may help account for the sharp drop in law school applications this past year, which in turn may limit law school tuition increases next year.  But don’t count too much on the latter.  There are still a lot more law school applicants than there are seats available; while a slower growth in tuition may be in the offing, it’s still likely that tuition will continue to climb—and in a low-inflation economic environment, those increases will likely still be faster than inflation.

What the drop in applications is more likely to do is to reduce expansion plans by law schools.  As we’ve noted before, certain law schools have reduced the size of their class, and The National Law Journal notes that of the 11 new law schools under consideration as recently as 2008, over half have been delayed or put on hold.

Both of those moves have the effect of maintaining a tight market for law school applicants.  Demand will continue to outpace supply, and unless there are a few more sharp declines in the number of law school applicants, that gap will continue to be substantial.

What does all this mean for potential law school applicants?  First, you should be clear-headed about why you want to be a lawyer—at current prices, you can’t go just because you think it would be a fun way to spend three years.  That some seem to have come to the conclusion that being a lawyer really isn’t what they want to do right now may have helped produce this year’s decline in applications.  That’s good.

Second, you need to be very diligent about understanding the level of debt you’ll incur as a result of law school and the income level you’ll need to have a reasonable living—after debt servicing and other expenses—after law school.  Running amortization spreadsheets isn’t a luxury, it’s a necessity, and you and your law school admissions and application advisor should be all over this.

It’s not just about the income level you’ll need to survive.  Your debt level has a significant impact on your career flexibility.  If you need a large law firm job after law school to service your debt, you need to be sure that that’s something that you’ll be happy with.  Your advisors should either have done that kind of work or be able to put you in touch with people who are doing it.  Unrealistic expectations about what the practice of law actually entails are, in my experience, the chief reason why some lawyers are unhappy.  But if you have six-figure debt, you’re putting yourself in a position where you won’t be able to change career paths easily.

Third, prospective law applicants should do everything in their power to improve their financial aid position.  For debt that is unavoidable, do a lot of work in selecting loan providers.  Providers offer considerably different terms and repayment schedules, have much different offerings with respect to “balloon payments,” and so on.  You and your advisors will have to do a lot of hard work now—but it can save you significant money later.

A lot of debt is avoidable, though, simply by putting yourself in the best possible position to receive merit-based financial aid, and then negotiating with law schools to improve your position.  So, a little checklist.

If you’re still in college, that starts with your grade point average, which you should maintain or improve.  A lot of LSAT prep and application advisors don’t really worry about that.  They should.  Part of providing the best possible advice is to work out a schedule so that applicants can do all they need to do—their coursework, their applications and the LSAT—in as comfortable a time frame as possible, minimizing overlapping obligations and “crunch times.”  That’s one of the reasons why—for clients still in school—I’m not a huge fan of the June LSAT, despite its general popularity.  That date tends to maximize the conflict between course work and LSAT prep.  Advisors who don’t work very carefully with their clients on a comprehensive schedule are, in my view, irresponsible, decreasing the chances of their clients obtaining the best law school admissions and financial aid outcomes.

Next up is your LSAT prep.  It can’t be “good enough.”  It should be the best LSAT prep you can find.  LSAT prep is an investment and the question is what return you can expect if you do your part.  A one-point or two-point difference can make a huge difference in your level of merit-based financial aid.  I recently had a client who, had he scored two points lower on the LSAT, would have received no merit-based money from the law school he most wanted to attend.  With those two points, he’ll graduate from that law school with no—zero—debt.  The first 14 points of his LSAT improvement didn’t matter for merit-based aid for that school; the last two did.  That’s not an uncommon story, though this law school was particularly clear on their criteria.

Then, your application package needs to be as perfect as you can make it.  This is especially important for “fine-point” financial aid decisions at many law schools.  No matter your GPA/LSAT hard data, your desired law schools will have hundreds of similar applicants, if not more.  Most won’t give money to them all (and if they do, then it’s really just discounted tuition).  Your application package can distinguish you within the group of similar applicants and can move you up into a more exclusive group.  Alternatively, it can move you down.  So, cookie-cutter or gimmicky personal statements, resumes that run on far too long, an off-note in a letter of recommendation—all of these can be tremendously damaging to your financial aid.  You and your admission advisor must be meticulous, both in thinking about your overall strategy and in working and reworking documents so that not even a fly-speck of an error remains.

Finally, you’re in law school, with money (or without).  Before you accept admission, understand what the criteria are for you to retain your aid.  You should also understand whether the award can be increased, and if so, under what circumstances.  That applies if you haven’t received financial aid also.  Open a discussion early with admissions and financial aid personnel to understand what you will need to do to receive financial aid in your second and third year.  This is tricky—law schools have you once you put your boots on the ground (although there are transfers, of course), so it’s usually a lot easier to lose your award than it is to increase it.  But many law schools do hold out the possibility of increases, and if you’re thinking about one that doesn’t, you should know that and price it into your budget.

Law school is expensive, and it’s getting more expensive.  Despite the decline in law school applications this year, I don’t expect costs to stop rising.  If you really want to be a lawyer (and you know what being a lawyer means in day-to-day terms), you can still radically reduce your post-law school debt burden—but it takes a lot of care and diligence to make that happen.  Friday the 13th rolls around only occasionally; if you’re planning on going to law school, you want to do everything you can to make sure that a real Friday the 13th is the only day that feels unlucky.

~ by Kyle Pasewark at Advise-in Solutions on May 13, 2011.