Calculating and Defraying the Financial Costs of Law School

Going to law school is a very expensive proposition. Those attending the leading private schools without grant aid can expect to spend over $125,000 for their three years. Even those attending a public school, such as the University of Michigan,—and paying resident tuition—may spend over $100,000. These figures represent the direct costs of the program, but the indirect costs are also important. The opportunity cost—or money foregone—is the amount of money you could have earned had you continued working (or begun to work) rather than going to law school. Similarly, if your spouse has to take a lower paying job or change careers, this also represents a potentially substantial opportunity cost.
Despite the size of these sums, the financial consequences of attending a well-chosen top school suggest that it can be a very good investment. It has been an extremely good investment historically, and looks to be an even better investment at the moment (given the massive increase in private sector starting salaries).


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Calculating the Cost of Law School

The financial aid you will receive for law school is based upon a simple formula; Cost of Law School - Expected (Family) Contribution = Financial Need

How Your Contribution Is Determined

The "sticker price" of law school is one thing; the amount you will actually have to pay is another. You may be given a grant (scholarship), loan, or work-study assistance. Before handing out any money, however, both the law schools and the federal government—the most important sources of financial aid for law students—calculate what they will expect you to contribute.

The law schools expect you to get whatever government loan aid is available before they will kick in any funds themselves (except, in some cases, when they give out merit grants, as discussed below). Thus, the first question is what the federal government will lend you. Federal government lending is based upon its calculation of your financial need, which it determines through the use of the Free Application for Federal Student Aid ("FAFSA"; available at www.fafsa.ed.gov), which you may recall from your college applications. Your expected contribution will be calculated by looking at your assets (including bank accounts, home equity, automobile, and so on) and income. Your spouse's assets and earnings are included in these calculations. Annual federal loans up to $18,500 are available— depending, of course, upon your demonstrated financial need.

Types of Financial Aid

Loans

The vast bulk of law school financial aid is in the form of loans. For those who will receive only need-based aid (not merit aid), schools typically require that students take on a set amount of loan—typically between $22,000 and $24,000 per year—before any grant aid or work-study is offered. Given that only a minority of students at the top schools receives merit grants, this means that a substantial majority of students will indeed take on a very substantial debt load to pay for law school. (This is clear from the fact that approximately three-quarters of those who attend the top schools borrow money to do so and, for those who do borrow, the average debt upon graduation is now approaching $80,000.)

For those with good credit histories, it is generally easy to borrow such amounts. Whether you should do so, of course, is another question. After all, borrowing influences not just your financial future, but also your career future. If you graduate with a massive debt load, you will not be able to work for the next years at a community college instructor's salary.

Choosing Loans

When comparing loans, consider both the fees charged for origination or guarantee and the interest rates. Origination or guarantee fees can be charged upon disbursement of your money, or when you go into repayment. In either case, consider these fees in your calculations. Interest rates in private loan programs are seldom flat rates. Instead, they are based upon the Treasury Bill or prime rates, with an additional several percentage points tacked on. This means that the actual interest rate will fluctuate with these market interest rates. It is, of course, easy to determine the cheapest rate if the loans you are examining all use the 90-day T-Bill rate, or all use the prime rate, as the basis of their calculations. It is a bit trickier to compare rates if one lender uses the T-Bill and another the prime rate. To determine what will be cheaper, calculate the current rate in effect by looking up the relevant T-Bill and prime rates and then adding the relevant percent figures. (Although the relationship between the T-Bill and prime rates can change, the former will generally be lower than the latter.)

Grants

Law schools offer two types of grants:

Need-based: These are offered at all of the top schools. Note, however, that they are available only after a student has taken on the requisite amount of loan. Eligibility varies from school to school. For example, wait-listed students may not be eligible at some schools.

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Merit: Many, but not all, of the top schools use merit grants to attract top applicants. Schools obviously differ in what they consider a "top applicant." This will vary according to the relative standing of the schools (a top applicant at North Carolina might not be one at Georgetown), the mix of backgrounds in each school's applicant pool (former foreign service officers might be thick on the ground for Washington, D.C.-based schools but rarities for Chicago schools), the desired types of students (if Michigan were trying to beef up the biotech side of its intellectual property program, it might find a biochemist from a major pharmaceutical company to be worth paying extra for), and a host of other factors.

Many schools have both internal and external constituencies that prevent candid talk about their merit aid policies. The subject of merit aid is complicated by a number of factors:

• Even the schools that are very active in giving merit aid find it controversial among their own administration and faculty. The idea of competing for students is repugnant to some, as is taking any money out of the pot for the financially needy.

• It is handy for a school to be able to claim that it is so good, and so attractive to applicants, that it need not enter the competitive fray by offering merit aid.

• Many schools now mix merit and need-based aid together under the simple heading of "grants," without wishing to describe the extent to which merit aid is included. (This facilitates several schools' saying that they do not actually give merit aid, even though they do indeed.)

• The merit aid policies of many schools are now very much in flux.

The net result of this situation is that you should not expect to get entirely clear (or straightforward) answers from all of the leading schools about their merit aid policies. Instead, you may learn about some of them only through the actual offers schools make to you.

A tip concerning merit aid: To maximize your chances of getting a merit grant, be sure that once you are admitted you go to whatever admitted students' days you can in order to demonstrate your keen interest in the school.

Outside Grants

There are numerous organizations that have funded general purpose or specialized grants that may be applied to law studies. These include foundations, clubs, fraternal organizations, labor unions, and churches.

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