Understanding the Debt Calculations
Copyright © 2001 DeLoggio Achievement Program. All rights reserved. This notice supersedes our usual copyright notice. No permission to reproduce this chart is granted unless expressly given in writing by the author.
The chart of debt load and repayment time below will help give you an idea of how long it will take you to get out from under that massive debt, given the massive salary that will accompany it. Most of you just want to read the chart, but a few want to see where the data came from. So for you rare few:
First, the column headings:
- Average salary: reported to USNWR by the law schools for 1999. This number went way up in 2000 and 2001, but with the recession, it probably won't rise, and may drop, but probably not to as low as it was in 1999. So overall, this is a realistic to pessimistic salary figure.
- Take-home pay: you may be familiar with the concept of "after-tax dollars," but your law associate's salary will add a new level of awareness to this concept. Most of you will bring home 2/3 of your gross salary. If you have dependents, this proportion can be higher. If you're making really big bucks, it can be lower. Since I don't know you, I used the generic 2/3 figure.
- Cost of living: how much do you need to live? Rock
bottom for a single adult? I figured costs for a cheap apartment in
an average neighborhood, or a comfortable apartment in a less trendy one,
plus public transportation -- no car payments. I came up with a number
of $1,000 a month for a cheap city, up to double that for an expensive one,
using the rent costs for each city from any book that ranks costs of living. (You
don't want to live that cheaply? I know; I've taken that into account
in "available income.")
- But the hard question was, "What city?" It's easy to say that NYU grads live in Manhattan. But Alabama grads don't live in Tuscaloosa, and Michigan grads don't live in Ann Arbor. So I got out my map of the U.S., plus my USNews Careers section. (Note that only "registered [i.e., paying] members" can get to that data, but at least the price is low.) The former told me that Alabama residents work in Birmingham, Montgomery, and Mobile, so I checked the costs for those cities. The latter told me that 1/5 of Michigan grads take the Michigan bar, and an equal number take the New York bar. So I figured out a "generic big city" rate for New York, DC, Los Angeles, and Chicago, and used that. I adjusted for schools with a particular leaning, (like Cornell's 80% New York 20% California).
- I also adjusted for the schools' reputation and salary, figuring that New York Law School grads might choose the cheaper housing in Brooklyn over the awe of Manhattan's towers, while NYU grads would make the opposite choice.
- All in all, the cost of living figure is a true work of art!
- Available income: that was easy! Subtract the cost of living
from the take-home pay. That's your discretionary income. Then
I decided to build in a fudge factor. Maybe I estimated the cost of
living too low. Maybe you won't want to live in that cheap an apartment,
or it will take too long to get to work from there. Maybe you're tired
of eating Ramen Noodles. So I cut the discretionary amount in half,
to leave some extra to play with.
- For the number-friendly, available = (take home-living)/2, or ((salary*.67)-living)/2.
- Average Debt: reported to USNWR by the law schools for 1999. Will it have increased since then? Maybe. I don't know whether grants have gone up to offset the increase in tuition (or more likely, whether tuition has increased to finance the grant wars).
- Years to pay: divide the debt by the available income, et voila! this is how many years it will take you to get out from under the debt burden.
Second, the numbers themselves:
- All numbers were rounded to even thousands.
- All tier, salary and debt numbers were taken from Best Graduate Schools: 2002 Edition, by U.S. News and World Report.
- All cost of living figures were calculated from the "rent" percentage in Places Rated Almanac, Millennium edition, by David Savageau and Ralph D'Agostino.
- The number-crunching was done in Microsoft Excel, which insists on remembering the stray decimals even when I try to make it forget them, so available income may look off by $1,000.
- For schools that did not report average salary, I estimated based on whatever seemed equivalent. For instance, I thought NYU's salary made a good approximation for Columbia's. These are marked with an asterisk (*).
- For schools that did not report average debt, I likewise ball parked, but this number should be considered to be very approximate. My guess of whose financial aid policies are like whose is the weakest piece of the chart. These are marked with a double asterisk (**).
Well I warned you it would take a while to understand what I did! All that being said, here's what you've been waiting for -- the chart itself!