Wednesday, September 09, 2009

Tuition Go Up, Comp Go Down

Apology in advance: some fairly depressing musings follow.

So, alright - all the buzz on UVA Law Blog has been about how tuition has been going up. There's not much we or anyone else can do about that - short of reigning in unnecessary costs, of course. Usually, we let others - like our friends at Above the Law - discuss the other piece of the puzzle: rise - and now fall - of salaries.

This is, of course, is no small matter. After all, if salaries at large firms (that presumably pay the market salary in their given region) - where most UVA students work according to the most recently reported Career Services data* - continue to increase, then increase in tuition don't seem so bad.

By way of explanation, tuition at UVA rose by around 9% annually from 2003 to 2008. But this doesn't seem that bad considering the starting salaries at large law firms in major markets rose almost 10 % from $145k to $160k (plus large bonuses). [Depression alert! The link takes you to an NYT article on burgeoning lawyer's salaries].

But now pay is decreasing - many firms in major markets have already cut salaries from 160k down to 145k. And one consultant thinks that it should go even lower, according to an ABA Journal article:
Some big law firms are cutting annual pay for new associates from $160,000 to $145,000, but the cuts need to go deeper, according to a law firm consultant. 
Writing at Cotterman on Compensation, one of the consulting firm’s principals, Jim Cotterman, says pay is still out of line, and it should drop to $125,000 or even $100,000.
Lawyer compensation will take a hit in other areas too, Cotterman predicts. He says signing bonuses are likely to be cut, benefits reduced and bonuses made more difficult to attain. 
The impetus for the changes will be client demands, he says. “Services will be competitively bid, outsourced, offshored, converged, internalized, re-engineered, and even forgone." Add alternative fee arrangements into the mix, he says, which transfer risk to law firms. "All of this will bring the major line item in any law firm—the cost of people—under assault. This will affect total employment, wage scales and job expectations.”
Lovely.

Anyway, we're not complaining - because there's no one really to complain to about things that are simple market forces; rather we're just pointing out that if there was any enmity about lawyers making "too much money," this might dampen it somewhat, as even those associates who start out at the top are going to make less - quite possibly significantly less if the consultant quoted above has his way - than they were before.

Bear in mind that if you have the full-complement of loans, your monthly payment will be around $1,800/month or $26,100/year (check this website) and your take home pay would be around 97k after taxes (that's for NYC, other states / cities would be better). So after loan payements, you have around 70k left. That's based on a 160k salary - pretty nice, when all is said and done.

But if the salary goes down to 100k, the take home is around $62.5k, according to this website. Less the loans, you're looking at $36.4k - a pretty big decrease.

That said, 100k for those lucky enough to get it is still a lot of money - even with student loan payments - in a country where the median income for a family of four hovers around 50k. Of course, a lot of emphasis

If anything this should serve as a warning to those considering law that the profit margin (the ratio of costs to benefits in this case) has diminished, and may continue to diminish even more sharply. And, of course, another argument against raising tuition again!

* Ed. note: Most of this data focuses on the class of 2008, and some of it - include the metrics for 1L job statistics, still focuses on 2007.

Related:
Big Law Associate Pay Should be Cut to 125k, or Even 100k, Consultant Says

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8 comments:

Anonymous said...

Assuming UVA has the financial resources to do this I have a simple solution: increase the scholarship of everybody by some fixed amount (with a caveat that no one can receive more than full tuition in scholarship).

It's a win/win (sort of). Students take on less debt,and will be better adjusted to a new salary scale. UVA gets a higher expenditure per student for the US News rankings. A recent analysis of the US News rankings showed that expenditure per student is the single most important factor in determining where in the Top10 elite schools are ranked.

More to the point, based on all other data points UVA should be ranked higher than it is. UVA's ability to handle money efficiently and intelligently is actually holding UVA back in US News (how's that for logical?). Crank up those expenditures per student and crank up the ranking.

Granted, this would be expensive.... but that's kind of the point. It would also be a good PR move, for whatever that counts for.

check it out @ http://money-law.blogspot.com/2009/08/how-top-ranked-law-schools-got-that-way.html

Anonymous said...

Not a bad post (agree with the sentiment), but did you not proofread it before you put it up? There are at least 2 sentences that don't resolve.

Anonymous said...

1) Student loans are often paid over more than 10 years (30 isn't uncommon) so your monthly payment number is likely on the high side of average for people who aren't making 6 figures

2) It's bad logic to equate UVA's tuition with its job prospects. Schools with better and (much, much) worse career prospects pay, by and large, the same amount to attend law school. It just isn't logically consistent to expect those two variables to be correlated when looking at the law school industry as a whole.

3) This also totally neglects the new federal IBR program, which completely changes the nature of post-education take home income for those who start in sub-6 figure jobs

Rule 12 (f) said...

3) This also totally neglects the new federal IBR program, which completely changes the nature of post-education take home income for those who start in sub-6 figure jobs

IBR only applies to federal loans - if you've taken out the full compliment, then you've got mostly loans that are ineligible.

Anonymous said...

GradPLUS loans are federal loans and are eligible for IBR repayment.

Rule 12 (f) said...

O rly? If so, I stand corrected then.

Anonymous said...

they should lay off some professors and decrease my tuition by 10 to 20 grand, that way i dont have to sling rock at buffalo wild wings.

Anonymous said...

They should lay off Dooley. Double score: get rid of an awful professor, save a few hundred grand.

Also, what's the deal with the Student Records hack who can't make LawReg work getting paid more than $100k?