Investments in law school

Christine at Glom runs the numbers on law school as an investment, linking this article. She suggests that law school may be a poor investment choice now that salaries haven’t kept up with tuition increases. This is of big interest to me, since I have a daughter applying to law school.

As Christine recognizes, the big factor is opportunity costs of time – tuition’s really a relatively small part of the calculation. In fact, I understand that the number people applying to law school is down this year. Now, as ever, that’s a function of how the economy is doing. My anecdotal experience in watching applications over the last 30 years is that law school is one of the best leading indicators.

The investment analysis is interesting. Should law schools’ disclosures be regulated like securities? Why not? How about sending deans to jail for their admissions directors' misrepresentations? I’ll bet that would change some legal academics' views of the securities laws.

Comments

[Kate Litvak]

A recent issue of Vogue suggests that everyone should "invest in a great pair of black pants." I am thinking of the right regulatory regime for this investment...

As I recall, economic definition of "investment" is rather narrow and does not include a consumer's purchase of black pants or education. Which might or might not enlighten our take on appropriate disclosure regimes.

[Larry E. Ribstein]

The definition of an investment contract looks at, importantly, whether the investor is looking for profits from the promoter's efforts. There's a substantial investor input that would arguably disqualify law school. Also, the return arguably depends on the general market rather than on the promoter's efforts. But there's no bright line. Some cases have unbundled the investor input from the issuer input -- e.g., a franchise. And the law school may promote its placement office, for example. Anyway, these are issues Congress could clarify if it were so inclined.

[Robert Schwartz]

I really think we need better guidance from economists on these issues. Undergraduate education will cost my 3 children about $150,000 each. What is the expected return on that. Law School would be another $100,000 plus. That is a lot of money. I don't think it can be justified on an investment basis.

Most of the analysis I have seen is fairly simplistic. A college grad will earn $X more in lifetime than a high school grad. How do you filter out the differences for which schooling is a sign not an origin. I.e. if two kids of similar IQ, background, temperament, habits, & such, differ only in whether they went to college, what will their differences in lifetime earnings be?