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Becoming a doctor or lawyer is still worth it

Reuters/Brian Snyder
The anti-law school camp is barking up the wrong tree.
By Allison Schrager
Published Last updated This article is more than 2 years old.

A degree is an asset that should increase your lifetime earnings. But like most high yield-assets, there are no guarantees. If you take on a student loan, your degree becomes a leveraged, more risky asset. And graduate school may be the riskiest bet of all. Only 14% of enrolled US students are in graduate school, but their loans make up 40% of federal loan disbursements.

Still, it seems like a risk worth taking. People who went to graduate school have the lowest levels of unemployment in the US and earn more. But not all degrees are equal. Unlike a liberal arts degree, most graduate degrees are more vocational and teach specialized skills. There exists a wide variation in earnings depending on where and what you study. A master’s degree in financial engineering pays off more than a master’s in journalism.

For decades, a law degree seemed like a sure bet. But now there are horror stories of unemployable law graduates, laden with debt. According to economist David Burke, much of the anti-law school hype is over-blown. Even during the recession, compensation for lawyers increased, albeit at a lower rate than it used to. And while a higher fraction of law graduates can’t get a job as a lawyer, in 2001, 76% of new graduates had a job that required passing the bar; in 2011 only 64% did, which Burke argues might simply reflect a bad economy rather than permanently lower demand. He estimates, assuming law pays off like it used to, that the law school investment offers a 9.5% return—better than the expected return on a S&P 500 index fund. But it depends on where you go to law school. A top-tier degree offers a 14.4% expected return and a low-tier law school just 4.6%.

Yet Burke’s estimates tell you nothing about risk. You could take that law school tuition, buy a bunch of futures to maintain a 10 to 1 leverage ratio on the stock market, and get an expected 90% return. But that’s an extremely risk strategy. A law degree is probably more valuable because it offers more safety and security.

The data below compare income risk for different graduate degrees, based on calculations from the Current Population Survey performed by the Census. The survey does not ask people what graduate degree they’ve completed, just if they went to grad school. The value of law school is measured by the earnings of people who went to professional school and work as a lawyer. The value of medical school is estimated by using the earnings of professional degree holders who are doctors. A business MA includes earnings of people who have a master’s degree and went into business or finance. I compare these to earnings of someone with a BA who works in any occupation. I didn’t include PhDs because it is not a vocational degree and is often funded.

The chart below shows the present value of real lifetime earnings minus average tuition for each degree. The median is the expected pay-off for each degree. To capture risk, I also estimated the 25th and 75th percentile of lifetime income. To factor in the years of forgone earnings, I assume BAs start their career at 22, business MAs and lawyers start earning at age 25, and doctors at 30:

Despite the high costs and years out of the labor force, graduate degrees in medicine and law are still good bets. You have an excellent chance of out-earning a BA, though it is no guarantee. Top-earning BAs earn more than the average lawyer or doctor. If you assume the average doctor or lawyer was an above-average undergraduate, he may have done just as well skipping grad school. The real benefit is the security graduate school provides. Even a low-performing grad student (whose earnings are in the 25th percentile) earns more than the average BA. Graduate school does not guarantee super-riches, but it gives you an excellent chance at above-average earnings.

A huge caveat: These estimations assume the past will be like the future, or that current lawyers and doctors will face a similar earnings trajectory to that of earlier generations. Whether or not these professions will pay like they used to is a huge source of uncertainty that’s impossible to predict. Still, from what we know today, one of the best investments you can make in an economy that values skills is education. It not only increases your earnings, but provides more security in terms of earnings and employment. Just be sure to choose the right degree from the right school.

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