922475--2/18/2009--ITT_EDUCATIONAL_SERVICES

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Risks Related to Our Highly Regulated Industry Failure of our institutes to comply with the extensive regulatory requirements for school operations could result in financial penalties, restrictions on our operations, loss of federal and state financial aid funding for our students or loss of our authorization to operate our institutes Action by the U.S. Congress to revise the laws governing the federal student financial aid programs or reduce funding for those programs could reduce our student population and increase our costs of operation One or more of our institutes may lose its eligibility to participate in Title IV Programs, if its student loan default rates are too high We may be required to post a letter of credit or accept other limitations in order to continue our institutes participation in Title IV Programs, state authorization and accreditation, if we or our institutes do not meet the financial standards of the ED, the SAs or the ACICS One or more of our institutes may have to post a letter of credit or be subject to other sanctions if it does not correctly calculate and return within the required time frame Title IV Program funds for, or refund monies paid by or on behalf of, students who withdraw before completing their program of study One or more of our institutes may lose its eligibility to participate in Title IV Programs, if the percentage of its revenue derived from those programs is too high Failure by one or more of our institutes to satisfy the ED s administrative capability requirements could result in financial penalties, limitations on the institute s participation in Title IV Programs, or loss of the institute s eligibility to participate in Title IV Programs We are subject to sanctions if we pay impermissible commissions, bonuses or other incentive payments to individuals involved in certain recruiting, admission or financial aid activities We cannot operate new institutes, add learning sites or offer new programs if they are not timely approved by our regulators, and we may have to repay Title IV Program funds disbursed to students enrolled at any of those locations or in any of those programs if we do not obtain prior approval If regulators do not timely approve a change in control of us or any of our institutes, the ability of the affected institutes to participate in Title IV Programs or operate may be impaired Government and regulatory agencies and third parties may bring claims or actions against us based on alleged violations of the extensive regulatory requirements applicable to our institutes, which could require us to pay monetary damages, receive other sanctions and expend significant resources to defend those claims or actions Investigations, claims and actions against companies in our industry could adversely affect our business and stock price Budget constraints in states that provide state financial aid to our students could reduce the amount of such financial aid that is available to our students, which could reduce our student population If the graduates of some of our programs are unable to obtain licensure in their chosen professional fields of study, the enrollment in and the revenue derived from those programs could decrease and claims could be made against us that could be costly to defend. Risks Related to Our Business If we fail to effectively identify, establish and operate new institutes and learning sites, our growth may be slowed Our success depends, in part, on our ability to effectively identify, develop, obtain approval to offer and teach new programs at different levels in a cost-effective and timely manner Our success depends, in part, on our ability to keep pace with changing market needs and technology Our financial performance depends, in part, on our ability to continue to develop awareness and acceptance of our programs among working adults and recent high school graduates If the lenders who provide private education loans to our students were to end or reduce their programs and we were unable to timely identify alternative lenders for our students, our students ability to finance their education could be adversely affected, our receivables could increase and our student population could decrease. If we experience losses in excess of the amounts that we have reserved with respect to the significant amount of internal student financing that we have provided to our students, it could have a material adverse effect on our financial condition and results of operations. High interest rates and tightening of the credit markets could adversely affect our ability to attract and retain students and could increase our risk exposure. If the charge-off rate on private education loans that we have guaranteed is higher than we anticipate, or if the charge offs occur earlier in the life of those loans, our guarantee obligation with respect to those loans may have a material adverse effect on us. Our loss of key personnel could harm our business Competition could decrease our market share, cause us to reduce tuition or force us to increase spending Our quarterly results of operations are likely to fluctuate based on our seasonal student enrollment patterns We may be unable to successfully complete or integrate future school acquisitions. Terrorist attacks and other acts of violence or war could have an adverse effect on our operations Natural disasters and other acts of God could have an adverse effect on our operations. Anti-takeover provisions in our charter documents and under Delaware law could make an acquisition of us more difficult If we are unable to conclude successfully litigation against us, our business, financial condition and results of operations could be adversely affected The personal information that we collect may be vulnerable to breach, theft or loss that could adversely affect our reputation and operations. Capacity constraints, security breaches or system interruptions to our computer networks could disrupt our operations, damage our reputation, limit our ability to attract and retain students and require us to expend significant resources. We rely on exclusive proprietary rights and intellectual property that may not be adequately protected under current laws, and we may encounter disputes from time to time relating to our use of intellectual property of third parties Risk Related to Our Common Stock The trading price of our common stock may fluctuate substantially in the future.

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922475--2/18/2009--ITT_EDUCATIONAL_SERVICES_INC