I haven't been following the story about the UChicago Law professor with a doctor wife who complained in a blog post about not feeling rich even though his combined family income is more than $250k. The professor took down his post after getting a ton of flack for his whining when so many people would kill to make even a fourth of his family's income, but a BIDER reader gave us the cached link to his post which you can go to here.When I first read the post, I immediately thought to myself, this guy doesn't feel rich because he probably owns at least two luxury cars and a McMansion in a very wealthy suburb of Chicago with more space than his family actually needs. In short, I could tell from the blog post that like so many lawyers who win the job lottery and end up in Biglaw or teaching at a top law school, this professor and his family spends well beyond their means even when they earn more than most of us could ever dream of.
The Legal Dollar proves that my initial conclusion about this law professor to be correct with a post that explains the full story behind this professor's lifestyle and the total amount of student debt he and his wife still have 12+ years after graduating from law school. This professor and his wife still owe more than $500k in student loans. Don't feel sorry for them. They should have spent their first several years out of school focused on paying off their loans instead of taking out more loans for their McMansion, but that is a mistake that many Americans have made. I have heard so many stories of seemingly upper-middle class families who lose everything because most of what they have was bought with credit cards and loans. I personally know people who make $100k but still struggle to pay the bills because they HAVE to have that nice apartment in Manhattan even if it means paying triple the amount of a smaller apartment in Jersey or the Bronx:
...Some commentators have been critical of the Professor, but let's take a
look at his situation as a way for young associates and those considering law
school to gain insight into what their life will be like if they are lucky
enough to win the law school lottery and earn top dollar. I previously
talked about why 145K/year does not go as far as new law grads think it will, but now we can get an example of what life is like for a lawyer more than 10 years out of law school.
First, read the articles linked above and let's set the context. The Professor is a 1998 graduate of law school and spent time at Kirkland & Ellis (which typically pays top dollar.) He is also married to a doctor who apparently also makes at least a $100K/year contribution to the home.
The first thing that I note is that although the Professor has been out of
law school for 12+ years and spent time at K&E, he and his wife still have
more than $500,000 worth of student loans. We don't know the exact split
of who brought what debt to the marriage, but the existence of the debt even
after 12 years in practice should help disabuse law students of the unrealistic
idea that they will somehow just "pay back their student loans in 3 years or
so." Here's someone making top dollar with a wife working a high-paying
job and they still have $500K in loans after 12 years - yikes!
For $500K in loans, assuming an interest rate of about 6.8%, they pay
$34K/year after taxes (most likely about $51K/year pre-tax) IN INTEREST
ALONE! It's hard to know what the actual total payments are, but figure an
additional 20K/year after taxes has to go to principal (about 30K before
taxes.) This means that about $80K of their pre-tax income goes to loan
payments.
What's my point? Student loans are just a monkey on your back that you will be carrying for decades. The Professor has been carrying his for 12+years - and will probably be carrying it for 20 more. For those considering law school, recognize that this means you - even if you win the "good job lottery" that is harder and harder to win these days.
Second, we note that the single biggest expense for the Professor and his
wife are TAXES! More than $100K/year. In my experience, potential law students - and even young associates - are consistently underestimating just how big a bite taxes take as your income increases. For example, remember those things like personal exemptions and loan interest deductibility that you get to deduct at lower incomes? Well, they disappear when you go higher. Also, the Alternative Minimum Tax (AMT) starts to take a much bigger bite. But it's not just federal income tax - it's state income tax, Social Security, and Medicare taxes (FICA), too. Right now these probably consume about +40% of the Professor's income.
...Third, the last thing that struck me about the articles is that the Professor mentions that his second biggest expense is his mortgage - and that it is less than $100K/year, but more than his student loan payment - and that his property tax is about $15K/year. According to Bankrate, the P&I payment on a $1.5M home loan over 30 years at 5% is about $96K/year. $80K represents about a $1.3M home loan.
Also, I am generally familiar with the Chicago real estate market and (although some suburbs deviate and are more expensive) a home that requires about $15,000/year in property tax probably costs somewhere in the $1.2-1.7M range.
This leads us to two points: First, even though the Professor has been out 12+ years and his wife works as a doctor, they probably don't have a large percentage of equity in their home. Second, the the Professor owns too much house. The total housing expenses including mortgage and tax are near to or in excess of $100K/year - which is frankly too much.
In summary, even if the Professor and his wife are paid $400K - as some commentators have suggested - they are most likely out about $100K in income taxes, $100K in mortgage and house taxes, and $80K in loans. That gets them down to about $120K, which after private school for the 2 kids (probably about $30K/year), a 401k contribution ($33K/year), and some base living expenses
for food, utilities, cars, etc (figure $3000/month = $36K/year) - the Professor
and his wife are left with a total of $21K.
This should be a lesson for anyone who still thinks that taking out $100k+ in student loans is a good investment even to go to a good school. Unless you are willing to live frugally for a decade or longer, you will have the student loan monkey on your back for the rest of your life, even if are lucky to earn in the six-figure range.
We all want nice things and to live comfortably, but there is a point when some people just become flat out greedy and when they hit a rough patch, they aren't willing to downgrade to a smaller house or a used car. They'd rather live on credit and pay off hundreds of thousands of dollars in loans until they die before giving up the luxuries they've become accustomed to. That is not the way to live. Unfortunately, people aren't realizing this until it is too late. This seems to be the case with this UChicago professor. Don't feel sorry for this guy, but do realize that a six-figure salary does not mean you are living the high life when you have six-figure student loans to pay back and you expect to send your kids to the best private schools, colleges, and graduate schools.
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