Law Students and the Wall Street Credit Crisis

The failure of the financial sector has implications beyond Wall Street and Congress. For now, the impact on law students may not be immediate. That is because those who have to finance their education through government backed loans can use Graduate PLUS loans that are not subject to fluctations in credit availability that affect private financing. Information on federal loans for BLS students is available on the Financial Aid page here.

Graduating students who need private loans while they study for the bar exam will likely feel the credit crunch. An article in the National Law Journal says:

Many law school graduates rely on private loans to pay their living costs while they study for the bar exam. But because banks are doling out less money to lenders, private loans are getting harder to come by, said New York Law School Dean Richard Matasar, who is also chairman of the board of directors of education lender Access Group. That means it will be more difficult for law school graduates to secure private loans, and graduates will likely pay higher interest rates if they do get a private loan to bridge the gap between graduation and the bar.

The financial crisis will likely result in slow economic growth so that graduates will spend more time in the job search process and will need additional financial assistance. The crisis may also cause many undergraduates to look to higher education during tough economic times and bad employment markets. Increased enrollment in law schools overall could be a positive side effect of the slowing economy, according to Dean Matasar.

Pursuing a JD, as opposed to an MBA, may be a safer career move now compared to a year or two ago when graduates of business schools would get job offers that most law school grads would envy. Given the current meltdown in the financial markets, the era of big bonuses in investment banks may never come back. But there will always be a need for lawyers even more so now. For interesting reading on the net present value of a law degree, read last week’s post at the Conglomerate which analyses whether law school is a good value. Using a median salary of $106,120 for lawyers and thinking of a law degree as an annuity, the article suggests that it is.

It represents a payment stream that lasts for a career (say 40 years) that equals the spread between what you would have earned without your law degree versus what you can with it. Using the median salary numbers, that spread is almost $60,000. Discounted at 8%, the annuity has a present value of over $700,000. The present value of three years of tuition (at $40,000 a year), books and foregone salary (at the median) is about $230,000.

The Financial Aid office will host a workshop for law students on how best to manage loan packages throughout law school and after graduation.

The forum aims to help law students improve their financial knowledge, learn how to limit their debt, improve their credit scores and protect their identity. It will be held on Monday, October 13 at 1pm in the student lounge.