922475--2/23/2007--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 SEAs 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 timely return 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, loss of Title IV Program funds for its students or the repayment of Title IV Program funds received by its students 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 A high percentage of the Title IV Program loans that our students receive are made by a small number of lenders and guaranteed by one guaranty agency 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 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 and/or higher-level degree programs 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, to a lesser extent, recent high school graduates The vast majority of private student loans received by our students are made by one lender and serviced by one loan servicer 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 High interest rates could adversely affect our ability to attract and retain students Our quarterly results of operations are likely to fluctuate based on our seasonal student enrollment patterns 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 continue to 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 or system disruptions to our computer networks could damage our reputation and limit our ability to attract and retain students. Our computer systems may be vulnerable to security risks that could disrupt operations and require us to expend significant resources. Risk Related to Our Common Stock The trading price of our common stock may fluctuate substantially in the future.

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922475--2/23/2007--ITT_EDUCATIONAL_SERVICES_INC