The cost of becoming a lawyer – does it pay off? (Part 2)

In my last related post, I wrote about my cost of going to law school. Of course, there is a clear opportunity cost for many when you choose to drop your life and move to go to law school (unless you are fortunate enough to attend a school in your home town). Often you will have to quit your full-time job, so your regular salary will be something you have to forgo when you choose to embark on this 3 year journey.

Before I went to law school I was working as a manager at a law firm and I was filling in for a maternity leave. It was a small Plaintiff firm (one lawyer and one paralegal). I had my paralegal license but I was not providing legal services. I was not making great money. Minimum wage at the time was around $11 and I was making $16 an hour working full time hours. So my salary was $33,280.00. I was also working part time at Payless Shoes. At the time, I attempted to quit twice and my manager was not having it so I was working maybe twice a month. This ended up working out for me because I was able to get transferred to a location in Windsor when I moved for school and because I was transferred as a favour pretty much, there was a lot of flexibility in terms of my shifts. This would likely not be the case if I got a new job given my garbage availability.

The reason I explain all of this, is because it allows you to have a good idea of what my actual income was before and during law school. So the story continues, I graduate law school I write the bar exams and I move back to Toronto. I had maybe 6 weeks (more or less) of freedom until I had to begin articling. A lot of people choose to take trips at this time. I did go to Miami for a week prior to articling which was a nice cost-effective trip. I didn’t have enough money to go on a big trip across Europe or anything like that. I also got engaged which meant the following year we got married and there were costs involved with this naturally. Thankfully we didn’t have a big wedding we essentially eloped with our families but this was a factor in my financials during articling.

I started articling in August after the civic long weekend. My income was based on a $60,000 annual salary. Because I only worked for 10 months I made a total of $50,000. In addition, my employer gave me a stipend because I didn’t qualify for their insurance program which was an additional $8,000. Unfortunately, my employer did not pay for my bar fees or exams so that was money I didn’t get back, but I understand that a lot of firms will do this. I worked for a large insurance company and so my experience was pretty lax. If I wanted, I probably could have held another part time job during the evenings/weekends realistically and made more money but I chose not to because I was of course trying to live my best life.

I also found out that if I contacted my bank and notified them that I secured an articling position I could extend my loan from $150,000 to $160,000. In other words, I would get an extra $10,000. I did this even though I still had money left in my loan. The reason was that I wanted to use that remaining balance to pay my OSAP outstanding so I could consolidate everything and potentially save on interest. I was able to pay OSAP in full with that extra money so my loan closed at $159,259.67. The interest rate on my loan was prime plus 0.5% while the interest rate for OSAP was prime plus 2% so I was saving a lot on interest. When my loan closed prime was about 3.95% (when I first got this loan it was only 2.5%).

After I calculated my budget for articling, I aimed to make $1,600 monthly payments towards my loan, some months this was difficult (for example during Christmas my payment dropped drastically for that month). My pay cheque after taxes when I was articling was $2,084.00. So I was making about $4168 after tax per month. At the time I was living with my fiancé and I was really only paying for groceries and maybe sometimes when we went out I would pay for our meals. I was also commuting by TTC downtown from our place which was on the outskirts of Toronto. I was back at home so catching up and going out with all my old friends was a thing so I was spending a lot more on meals and entertainment. My average spending was about $2,945. I was also putting money aside for our wedding/trip to Italy the following year. By the end of 2018, my loan total was $155,726.37. I know this doesn’t seem like a lot of movement given my payment amounts at this time, but you have to remember the interest. Interest was at its highest point here as my loan was also at its highest balance:

You can see from this chart that interest is fluctuating, my interest was pinned against prime and was compounded. In addition, in September was when my loan was pretty much “closed” (I was operating as if it was closed, I made no other withdrawals after this). In other words, in August I had exhausted what I could to pay my OSAP loan so this is why the interest was pretty high at this point.

In 2019, I continued articling, I had only taken a few vacation days (I was entitled to two weeks paid vacation) so I was paid out for my un-used days in 2018 and in 2019 I requested to end a week early in lieu of my vacation pay. I also found out I was not being hired back. By the end of articling (June 2019) my loan balance was $149,550.69. In June, I went to Italy and got married (I can certainly make a separate blog post about how much this cost us).

I was able to secure a position while I was away and I was to start the day after my call to the bar. I returned from our trip, got called near the end of June and then started working the day after. This left me with a very minimal gap in employment thankfully. My first job as a real lawyer my monthly income after taxes is about $5,00 (this is in the general ball park of what you can expect to make in insurance defence at this time in Toronto). I was able to increase my loan payments to a steady $2,000.00 a month My interest/payment breakdown for my loan was as follows:

As you can see in November my husband and I actually moved, we sold the unit that we were living in (which was owned by him only initially) and then bought another unit in the same building with more space. As part of this process we were able to roll part of my loan with our mortgage as the interest rate on our mortgage was 2.77% fixed (which is certainly lower than prime plus 0.5% which at the time was 4.45%). This explains the large sum payment in November. By the end of 2019, my loan balance was $121,240.78.

Another thing to note about 2019 is that after filling my taxes for 2018, I received a refund for $4,193.43. Most of this was put towards my wedding and Italy trip.

We are now almost half way through 2020, prime has dropped but also the work climate is real precarious. Here are my year to date interest and payments:

At this time, looks like we’re are approaching a recession. I am aware of this and I am trying to make sure I am in a good place financially while still making payments towards my loans. My overall spending has decreased during quarantine (not going out with friends, not going to the mall, not travelling to work or buying fast food) so I have been able to make my regular payments.

By the time I am writing this post my current balance on my loan is $109,755.27. Unfortunately, my loan has still not officially become payable so I don’t even know what the minimum payment is. My interest rate right now is 2.95% which accounts for the drop in prime. If my calculations are correct (and based on the current interest rate) my monthly minimum payment should be $1,057.00 amortized over 10 years. This is not bad at all however the total interest over 10 years would be $17,118 which means the real balance is truly $126,873. Of course, this is an approximate amount based on today’s prime rate which is will likely go up once the economy is back up and the anticipated recession is over.

If I am able to continue paying $2000 a month and the interest rate stays at 2.95% (unlikely) then I will be able to pay this all off in less than 5 years.

If I calculate based on a 4% interest rate (a conservative average based on the rate from 2015 to now), at $2000 a month, I can expect to pay off my loan in under 6 years.

Here is a helpful resource I always use to calculate my anticipated monthly payments and my expected repayment term:

So the final analysis is as follows:

From 2015 to 2018 I was making little to no income and I spent a total of almost $150,000.00 in order to pretty much triple my pre-law school income. Was it worth it? Well, the job security and true job flexibility (I mean if it came down to it ,I can always start my own practice) is one that I don’t know that I would get with any other career. Sure, you can potentially spend three years working and perhaps increase your income that way. However, if this theoretical climb is internal (ie at one company versus switching from job to job) I am not sure whether this increase in pay will be transferable to another employer. I am writing only as it pertains to this field. I was a licensed paralegal prior to attending law school and I can say that most licensed paralegals are doing accident benefits work, small claims work or traffic tickets. Others are doing legal assistant or law clerk jobs which is just the nature of the field unfortunately (please don’t come for me paralegals). While some are perfectly fine doing that work, I wanted something more reliable and challenging and for me in particular, this was the way I had to land.

Those goes without saying that I hope this finds someone who is really and seriously considering this move and change in career or perhaps someone who has already finished, incurred all of this debt and want to feel better about their loan (I can hear it now-the Dual J.D. Program costs how much!?). I am here to provide transparency and guidance where there were a lot of mysteries and question marks for someone like me in 2014.