| Topic Name: |
Law School Debt |
| Message Name: |
What makes it even tighter for me |
| Date Posted: |
04/24/2002 |
| In Reply To: |
Just look at the following calculations. The guy should go for a scholarship at a lesser university rather than seek status.
Option A ?? Go to a lower tier school on scholarship
Graduate in the top 10% of class
Opportunity Cost
Lost Wages $35000 per year
Real Cost
Loans $18000 for 3 years
Future Wages
Ave Law Salary $65000 per year (Temple)
Take Home Pay $42250
Loan Interest Rate 9%
Loan Duration 5 years
Capitalized Loan Balance $25,375
Loan Payment $432.07
Loan as a % of Take Home Pay 12%
Inflation 3%
Average Wage Increase over CPI 1%
Adj Wage Growth Rate 1+3 =4%
Investment Rate 7%
Risk-free Rate (5 year Treasury Rate) 5%
Real Discount Rate 1.05/1.03=1.94%***
PV of Lost Wages = ($ 104,661)
Capitalize Interest (FV of Loans @ Graduation) = $ 21,593
Total Paid for Loans after Graduation = $ 25,375
Discounted to present Dollars = ($ 24,165)
Future Earnings with Adj Wage Increase (15 years) = $1,301,533
Discounted to present Dollars = $ 975,631
Total Investment Earnings (years 1-15) $ 554,890
Fund Invested years 1-5 @ 7% $1514.71/mo
Fund Invested years 5-15 @7% $1946.78/mo
Discounted to present Dollars = $ 415,947
Net Present Value of the law degree= $1,262,752
Option B ?? Go into $160K in debt to buy a ??name brand?? degree
Graduate in the top 50% of class
Opportunity Cost
Lost Wages $ 35000 per year
Real Cost
Loans $ 160000 for 3 years
Future Wages
Ave Law Salary $ 80000 per year (Penn)
Take Home Pay $ 52000 per year
Loan Interest Rate 9%
Loan Duration 15 years
Capitalized Loan Balance $191,940
Loan Payment $1946.78
Loan as a % of Take Home Pay 45%
Inflation 3%
Average Wage Increase over CPI 1%
Adj Wage Growth Rate 1+3 =4%
Investment Rate 7%
Risk-free Rate (5 year Treasury Rate) 5%
Real Discount Rate 1.05/1.03=1.94%***
PV of Lost Wages = ($ 104,661)
Capitalize Interest (FV of Loans @ Graduation) = $ 191,940
Total Paid for Loans after Graduation = $ 350,420
Discounted to present Dollars = ($ 303,828)
Future Earnings with Adj Wage Increase (15 years) = $1,601,877
Discounted to present Dollars = $1,200,777
Net Present Value = $ 792,288
Option A produces $470,464 more than Option B over the 15 years
Option C ?? Just for grins ?? Keep your $35,000 job and invest 10% for the next 15 years
Opportunity Cost
Lost Wages $ 0 per year
Real Cost
Loans $0 for 3 years
Future Wages
Ave Salary $35000 per year (Temple)
Take Home Pay $24500
Loan Interest Rate 9%
Loan Duration 0 years
Capitalized Loan Balance $ 0
Loan Payment $ 0
Loan as a % of Take Home Pay 0%
Inflation 3%
Average Wage Increase over CPI 1%
Adj Wage Growth Rate 1+3 =4%
Investment Rate 7%
Risk-free Rate (5 year Treasury Rate) 5%
Real Discount Rate 1.05/1.03=1.94%***
PV of Lost Wages = ($ 0)
Capitalize Interest (FV of Loans @ Graduation) = $ 0
Total Paid for Loans after Graduation = $ 0
Discounted to present Dollars = ($ 0)
Future Earnings with Adj Wage Increase (15 years) = $ 700,825
Discounted to present Dollars = $ 525,340
Total Investment Earnings (years 1-15) $ 63,392
Fund Invested years 1-15 @ 7% $200/mo
Discounted to present Dollars = $ 47,519
Net Present Value of the law degree= $ 572,859
|
| Message: |
is that with my BA I already make a decent salary (>60k).
My three years of law school means about 200k in lost wages, plus my income has to be that much higher to justify it.
But I'm not getting a law degree for money, and my debt's going to be under 50k. Still, this is good stuff to think about.
|
|
