Crucial Weaknesses

Clearly, this article has given new life to those who would defend the status quo. However, even assuming the statistical methodology is sound (which I do, as I have no reason to believe otherwise and no time to recreate it), the study suffers from a number of crucial weaknesses.

First, Part IV makes the assumption that current market challenges reflect no more than the historically cyclical nature of the legal market. If you do not agree with this assumption (and I do not–I think Susskind’s view on this issue is far more sound), then the entire study is fundamentally flawed. However, even if you buy this assumption, there remain further issues with the study.

The title itself, the “Million-Dollar Law Degree” is misleading at best. This million dollar figure reflects the mean value, where the mean is skewed significantly higher than the median. Thus, it overstates the value for significantly more than half of all JD grads. It also reflects “pre-tax” value, a point that the authors do not address until near the end of the article at Part V.C. There, the authors acknowledge that their calculated benefit must be divided between private “after-tax” earnings and public tax revenues.

Interestingly, the authors’ IRR numbers are calculated only on pre-tax value, and are not provided for after-tax value. However, the authors do acknowledge on page 44 that “[e]ven at the 25th percentile and after subtracting federal taxes, the value of a law degree will still typically exceed its cost, although the private returns are substantially reduced.” In fact, one can easily see a “loss” at the 25th percentile, when considering typical costs at institutions charging more than $40,000 per year tuition (and the well documented “reverse Robin Hood” effect insures that the weaker students will typically pay the highest tuition amounts)–even under this vigorous defense of the status quo.

The 25th percentile purportedly realizes an increase in pre-tax value of $350,000. The authors assume a 25% federal tax rate for this group, but magically assume away state or city taxes, as equal to corresponding private benefits–an assumption I am guessing prospective law students don’t share. Let’s add 5% state income tax for a hypothetical student from NY, for an average tax rate of 30%. $350,000 is now $245,000. It’s pretty easy to imagine total law school debt, plus interest, paid out over 30 years, significantly exceeding $245,000. Perhaps that’s why the authors avoid this detailed analysis.

Again, I am not saying I buy the most basic assumption made by the authors with respect to the future of the market for legal services. However, I find it remarkable that, even this vigorous defense of the status quo, leaves at least a quarter of JD students with what is likely a losing proposition over the long haul.

UPDATE: For further analysis of the educational “cost” of generating the purported $245,000 after-tax value of a JD at the 25th percentile, see Paul Campos, If I had a million dollars, here. He analyzes the median after-tax gross value of $420,000 and calculates a net gain of $109,000, thus employing a cost (appropriately discounted to NPV, as is the value generated) of $311,000. Using this same cost at the 25th percentile, we get a net loss of $66,000 based on the total after-tax value of $245,000. Paul’s after-tax number is actually a bit more generous than mine, as he ignores the effect of state or local taxes. My assumption of a 5% state tax would reduce Paul’s gain to a little less than $90,000. Thus, one might suggest, as a “rough cut,” a “break even” point at around the 33rd percentile. While a 2 to 1 likelihood of making money on a conservatively evaluated purely financial investment might be a good bet, a 1 in 3 chance of losing money on a legal education is a huge risk—especially in view of the authors’ almost certainly flawed assumption of “business as usual” for the legal market going forward.


Professor Jack Graves teaches Contracts, Business Law, and Arbitration (domestic and international) at Touro Law Center in New York. His writing and speaking on the need for major reform in legal education include, An Essay on Rebuilding and Renewal in American Legal Education, 29 Touro L. Rev. 375 (2013), available online here; and A More Cost Effective Model for Legal Education, __ N.Y.L.J. __ (September 2013) (to be published as part of a special issue on legal education and admission to the bar). A complete bio and CV is available here.