In the past, Biglaw has weathered an economic downturn (e.g., the Great Recession) by deferring the start dates of its incoming first-year associate classes, and they look to be doing the same during the pandemic.
What should recent law school graduates and law students know about Biglaw deferrals? First, know that deferrals are likely (if they haven’t already been announced) for this year and the following year (and possibly even the one after that). Second, know that you can plan for one and don’t have to get caught off-guard. Lastly, rest assured that a deferral is not the end of the world (or your legal career).
As a 2009 law school graduate, I know what it’s like to get that deferral notice. Suddenly, all of the plans you had made – study for and take the bar, take a “bar trip” around the world, move to a new city, and begin work as a first-year associate in the fall – go out the window. After the market crash of 2008 and the recession that followed, Biglaw wasn’t exactly desperate to take on (and pay) new associates when there wasn’t much work.
The solution? Mass deferrals (for both the Class of 2009 and the Class of 2010). It’s looking like this will be the solution for the Class of 2020 as well. Let’s dive into what we know about coronavirus-related deferrals, how you can plan for a deferral by getting your financial house in order to the best of your ability, and why everything is going to be OK.
Coronavirus-Related Biglaw Deferrals – What We Know and Don’t Know
There are so many unknowns when it comes to the coronavirus pandemic. When will Biglaw offices open up? When will work tick back up? Is the downturn temporary or will it last for years? There are so many things we don’t know, but some that we do.
What We Know
While not all firms have announced delayed start dates, and those that have announced them might decide to push start dates back even further, there are some things about the deferrals that we do know:
- We know that deferrals have been announced or are in the works for many Biglaw firms and that most start dates have been pushed back to January or February 2021.
- We know that many firms are offering varying levels of compensation, from stipends to salary advances. However, some seem to be offering nothing at all (at least nothing that has been publicly announced).
- It does not look like any major Biglaw firms have plans to rescind offers – the deferrals are meant to be just that – delayed starts, not layoffs.
What We Don’t Know
There is more that we don’t know about these deferrals. We don’t know:
- Whether start dates will be pushed back further. Even if a firm announced a start date of January 2021, for example, depending on how the pandemic plays out and how it continues to affect the economy and Biglaw, some firms might need to delay start dates even further.
- Will any firms end up deferring associates for an entire year, as they did in 2009?
- What kind of monetary stipends will firms settle on (these seem to be changing as the pandemic wears on)?
- How will these Class of 2020 deferrals affect the Class of 2021? Rising 3Ls should be aware that they, too, might be deferred. The ripple effects in 2009 affected the classes of 2009, 2010, and 2011 in different ways.
Plan for a Deferral Now, Whether or Not You’ve Gotten the News
As you can see, there are lots of unknowns, both for the current class of incoming associates as well as for future ones (a deferred class one year often affects the following years, until the firm can rebalance its summer associate and incoming associate numbers).
With all of the unknows, what can you do? The bottom line is that whether or not you’ve received word that you will be deferred, you should plan as if you will be. Here are some tangible steps you can take:
1. Save your Biglaw summer salary and cut back on your expenses starting now.
If it’s not too late, put away as much of your Biglaw summer salary as possible. If you are a law student planning to summer in Biglaw next year, don’t spend like a Biglaw lawyer before you are one, especially now.
If you are already living like a poor law student, plan to continue living like that for the near future (this is good practice, anyway). If you took your Biglaw summer salary and upgraded your life, think long and hard about those upgrades. It’s not too late to turn back and unlock the golden handcuffs before they trap you for the long-term. (Living below your means is good practice for law firm associates in general – you do not want to get trapped by golden handcuffs if it turns out Biglaw isn’t right for you.)
2. Think twice before moving to or signing a lease in a new city, or upgrading your living quarters just yet.
If your Biglaw job is in a new city, don’t move there until you are certain your job will start (and start paying you). Don’t move to an expensive city like New York until the very last moment (it is so easy to get a rental right now – landlords are offering deals left and right and are basically begging for tenants, so there’s no rush).
Stay at home, stay living with roommates, do whatever you can to keep your housing costs low. Once you begin work, you might even be able to stay in or temporarily move to a lower cost of living city if your colleagues continue to work remotely (talk to your firm about their plans for getting people back to the office and be flexible with moving in case you do need to go to the office).
If you already live in the same city as your job, don’t upgrade your living space just yet. When you are a Biglaw attorney, there are certain perks you are definitely justified spending money on, and there are certain “non-essentials” (a well-equipped home office) that really are essentials for Biglaw associates. But if you aren’t starting your Biglaw job until January, February, or even the fall of 2021, don’t splurge on the expenses related to a Biglaw job until you actually begin that Biglaw job.
3. Have a “plan B” for health insurance coverage.
If there’s one thing COVID-19 has shown everyone (even healthy young adults), it’s the fragility of life and the importance of health insurance, no matter your age. If you were counting on receiving health insurance through your job, you need to have a plan B for getting coverage if you are not starting that job as expected.
Under the Affordable Care Act, young adults can remain on their family’s health insurance plan until they turn 26. This applies to some recent law graduates, but certainly not all, either because your family does not have coverage or because you are already over 26.
When I was deferred for a year, while my firm gave everyone in my class a stiped, they did not put us on the firm’s health insurance. This was pre-Obamacare, so I had to find my own coverage. It was not cheap, and I don’t think I saw the doctor once that year, but it certainly was worth the peace of mind knowing I had coverage if I needed it. Buying your own health insurance can be costly, but it is temporary, and you do not want to risk being uninsured, especially now.
4. When You Do Start Working – Remember to Avoid These Classic Financial Mistakes
Keep in mind that you will start working eventually. This deferral is temporary, so take the time now to educate yourself on how to manage your money when you do start making a steady Biglaw salary. Not managing your student loan debt, overconsuming – these are just a couple of the classic financial mistakes new lawyers make. If you educate yourself on these pitfalls before you begin working, you’ll be less likely to make them.
It’s All Going to Be OK
I hope this doesn’t sound too naïve, but I did want to end on a somewhat positive note to say that, no matter what, it is all going to be OK.
Why am I so sure about this?
First, because it ended up OK for my classmates and me when we were deferred in 2009. We all figured it out. Some were deferred for a year and started their jobs in Biglaw, just one year later. Others decided to forego Biglaw altogether (you never know what you’ll discover during your deferral period – there are plenty of alternative careers for lawyers, and sometimes taking a step back and thinking about what you really want to do will open your mind to these other careers). And everyone ended up OK.
Second, because it is not in the firms’ best interests to leave their incoming associates or future associates hanging out to dry. A deferral is temporary. I don’t mean to minimize the effects of a deferral – they are great and, depending on your financial situation and privilege, can be hugely consequential. Losing expected income during a time like this is hard on anyone. But the pandemic will pass eventually and law firms will need junior associates. While we don’t know when this will be, it will happen.
Third, because Biglaw knows that it cannot renege on offers to incoming associates, which is why they defer associates in the first place. Rescinding offers during a time like this would look awful for the firm’s reputation and they would have trouble competing for law students during upcoming recruiting seasons.
I’m confident that a deferral means just that – a delayed start. In most cases, you will end up in Biglaw, just a little later than planned. If you prepare for it to the best of your abilities, manage your finances, and take care of your health, you’ll survive a Biglaw deferral just fine.
Joshua Holt is a practicing private equity M&A lawyer and the creator of Biglaw Investor. Josh couldn’t find a place where lawyers were talking about money, so he created it himself. He spends 10 minutes a month on Personal Capital keeping track of his money and is currently fascinated by the JD Mortgage service connecting lawyers with lenders offering no to low down payment options.