10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

ANNUAL REPORT

(Mark One)

x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2013

OR

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     

Commission file number 1-13144

ITT EDUCATIONAL SERVICES, INC.

(Exact name of registrant as specified in its charter)

Delaware	36-2061311
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

13000 North Meridian Street Carmel, Indiana	46032-1404
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code (317) 706-9200

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Name of each exchange on which registered
COMMON STOCK, $.01 PAR VALUE	NEW YORK STOCK EXCHANGE, INC.

Securities registered pursuant to Section 12(g) of the Act:

NONE

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  ¨    No  x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes  ¨    No  x

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ¨    No  x

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ¨    No  x

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	x	Accelerated filer	¨
Non-accelerated filer	¨  (Do not check if a smaller reporting company)	Smaller reporting company	¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

$566,443,560

Aggregate market value of the voting stock held by nonaffiliates of the registrant based on the last sale price for such stock at June 28, 2013 (assuming solely for the purposes of this calculation that all Directors and executive officers of the registrant are “affiliates”).

23,449,175

Number of shares of Common Stock, $.01 par value, outstanding at September 30, 2014.

DOCUMENTS INCORPORATED BY REFERENCE

None

ITT EDUCATIONAL SERVICES, INC.

Carmel, Indiana

Annual Report to Securities and Exchange Commission

December 31, 2013

Table of Contents

PART I		1
Item 1.	Business.	1
Item 1A.	Risk Factors.	15
Item 1B.	Unresolved Staff Comments.	41
Item 2.	Properties.	41
Item 3.	Legal Proceedings.	42
Item 4.	Mine Safety Disclosures.	47
PART II		47
Item 5.	Market For Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.	47
Item 6.	Selected Financial Data.	49
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.	52
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk.	83
Item 8.	Financial Statements and Supplementary Data.	84
Item 9.	Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.	84
Item 9A.	Controls and Procedures.	84
Item 9B.	Other Information.	85
PART III		85
Item 10.	Directors, Executive Officers and Corporate Governance.	85
Item 11.	Executive Compensation.	87
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.	135
Item 13.	Certain Relationships and Related Transactions, and Director Independence.	139
Item 14.	Principal Accountant Fees and Services.	141
PART IV		144
Item 15.	Exhibits and Financial Statement Schedules.	144

- i -

PART I

Item 1. Business.

Forward-Looking Statements: All statements, trend analyses and other information contained in this report that are not historical facts are forward-looking statements within the meaning of the safe harbor provision of the Private Securities Litigation Reform Act of 1995 and as defined in Section 27A of the Securities Act of 1933 (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934 (the “Exchange Act”). Forward-looking statements are made based on our management’s current expectations and beliefs concerning future developments and their potential effects on us. You can identify those statements by the use of words such as “could,” “should,” “would,” “may,” “will,” “project,” “believe,” “anticipate,” “expect,” “plan,” “estimate,” “forecast,” “potential,” “intend,” “continue,” and “contemplate,” as well as similar words and expressions. Forward-looking statements involve risks and uncertainties and do not guarantee future performance. We cannot assure you that future developments affecting us will be those anticipated by our management. Among the factors that could cause actual results to differ materially are the following:

• the impact of the adverse actions by the U.S. Department of Education related to our failure to submit our 2013 audited financial statements and compliance audits to it by the due date;

• the impact of our consolidation of a variable interest entity on us and the regulations, requirements and obligations that we are subject to;

• our inability to obtain further required amendments or waivers of noncompliance with covenants under our credit agreement;

• actions by the New York Stock Exchange to delist our common stock;

• our inability to remediate material weaknesses, or the discovery of additional material weaknesses, in our internal control over financial reporting;

• issues related to the restatement of our financial statements for the first three quarters of 2013;

• our exposure under our guarantees related to private education loan programs;

• the outcome of litigation, investigations and claims against us;

• changes in federal and state governmental laws and regulations with respect to education and accreditation standards, or the interpretation or enforcement of those laws and regulations, including, but not limited to, the level of government funding for, and our eligibility to participate in, student financial aid programs utilized by our students;

• business conditions in the postsecondary education industry and in the general economy;

• our failure to comply with the extensive education laws and regulations and accreditation standards that we are subject to;

• effects of any change in our ownership resulting in a change in control, including, but not limited to, the consequences of such changes on the accreditation and federal and state regulation of our campuses;

• our ability to implement our growth strategies;

• our failure to maintain or renew required federal or state authorizations or accreditations of our campuses or programs of study;

• receptivity of students and employers to our existing program offerings and new curricula; and

• our ability to collect internal student financing from our students.

Readers are also directed to other risks and uncertainties discussed in “Risk Factors” and elsewhere in this Annual Report and those detailed from time to time in other documents we file with the U.S. Securities and Exchange Commission (“SEC”). We undertake no obligation to update or revise any forward-looking information, whether as a result of new information, future developments or otherwise.

You should keep in mind the following points as you read this report:

• References in this document to “we,” “us,” “our” and “ITT/ESI” refer to ITT Educational Services, Inc., its subsidiaries and the variable interest entity (“VIE”) of which it is the primary beneficiary, unless the context requires or indicates otherwise.

• The terms “ITT Technical Institute” or “Daniel Webster College” (in singular or plural form) refer to an individual school or campus owned and operated by ITT/ESI, including its learning sites, if any. The term “institution” (in singular or plural form) means a main campus and its additional locations, branch campuses and/or learning sites, if any.

• References in this document to “education programs” refer to degree or diploma programs of study that have been, or may be, offered by an ITT Technical Institute or by Daniel Webster College; and references in this document to “training programs” refer to the non-degree, short-term programs that have been, or may be, offered through the Center for Professional Development @ ITT Technical Institute.

-1-

Background

We are a Delaware corporation incorporated in 1946. Our principal executive offices are located at 13000 North Meridian Street, Carmel, Indiana 46032-1404, and our telephone number is (317) 706-9200. From 1966 until our initial public offering on December 27, 1994, we were wholly owned by ITT Corporation, an Indiana corporation, formerly a Delaware corporation and formerly known as ITT Industries, Inc. (“Old ITT”). On September 29, 1995, ITT Corporation, a Nevada corporation (“ITT”), succeeded to the interests of Old ITT in the beneficial ownership of 83.3% of our common stock. ITT’s beneficial ownership of our common stock ended in February 1999.

Overview

We are a leading proprietary provider of postsecondary degree programs in the United States based on revenue and student enrollment. As of December 31, 2013, we were offering:

• master, bachelor and associate degree programs to approximately 57,000 students; and

• short-term information technology and business learning solutions for career advancers and other professionals.

As of December 31, 2013, we had 149 college locations (including 147 campuses and two learning sites) in 39 states and one training facility. In addition, during 2013 we offered one or more of our online programs to students who are located in all 50 states. All of our college locations are authorized by the applicable education authorities of the states in which they operate, and are accredited by an accrediting commission recognized by the U.S. Department of Education (“ED”). We design our education programs, after consultation with employers and other constituents, to help graduates prepare for careers in various fields involving their areas of study. We have provided career-oriented education programs since 1969 under the “ITT Technical Institute” name and since June 2009 under the “Daniel Webster College” (“DWC”) name.

In August 2013, we acquired all of the membership interests of Cable Holdings, LLC (“Cable Holdings”), an education company that offers short-term information technology and business learning solutions for career advancers and other professionals. The acquisition of Cable Holdings allowed us to immediately begin operating in the short-term learning solutions market, which we hope to expand upon by:

• leveraging our relationships with employers of our ITT Technical Institute and DWC graduates, the ITT Technical Institute and DWC alumni and our facilities; and

• integrating Cable Holdings’ operations into the Center for Professional Development @ ITT Technical Institute (the “CPD”).

In 2013, we did not begin operations at any new ITT Technical Institute campuses or learning sites. As part of our efforts to maximize the efficiency and effectiveness of our current campus locations, during 2013, we:

• relocated five of our campuses into existing facilities of other ITT Technical Institute campuses; and

• suspended the enrollment of new students at two other ITT Technical Institute campuses and, subsequently, determined to discontinue operations at those campuses after the students who are currently attending those campuses have had an opportunity to complete their education programs at those campuses.

In 2013, we also continued our efforts to diversify our program offerings by developing education programs at different credential levels in technology and non-technology fields of study that we intend to offer at our campuses and deliver entirely in residence, entirely online over the Internet or partially in residence and partially online.

In June 2014, the Audit Committee of our Board of Directors determined that, beginning on February 28, 2013, we should have consolidated the trust (the “PEAKS Trust”) that purchased, owns and collects private education loans made under the PEAKS Private Student Loan Program (the “PEAKS Program”) in our consolidated financial statements (the “Consolidation”). As a result of the Consolidation, we have restated our unaudited condensed consolidated financial statements as of and for each of the fiscal quarters ended March 31, 2013, June 30, 2013 and September 30, 2013. Our consolidated financial statements as of and for the fiscal year ended December 31, 2013 contained in this report reflect the Consolidation. The Consolidation has resulted in a significantly different presentation in our consolidated financial statements of our transactions with the PEAKS Trust. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our Notes to Consolidated Financial Statements for further information about the Consolidation.

Business Strategy

Our strategy is to pursue multiple opportunities for growth. We are implementing a growth strategy designed to:

• improve the academic outcomes of our students;

• increase the value proposition of our education programs for our students; and

• increase access to high-quality, career-based education.

We intend to pursue this strategy by:

• increasing student enrollment in existing programs at existing campuses;

• increasing the number and types of program and other educational offerings that are delivered in residence and/or online;

-2-

• increasing our students’ engagement in their programs of study;

• enhancing the relevancy of our educational offerings;

• assessing student achievement and learning;

• improving the flexibility and convenience of how our institutions deliver their educational offerings;

• helping our graduates obtain entry-level employment involving their fields of study at higher starting annual salaries;

• operating new campuses across the United States; and

• investing in other education-related opportunities.

The principal elements of this strategy include the following:

Enhance Results at Each Institution.

Increase Enrollments at Existing Campuses. We intend to increase recruiting efforts that are primarily aimed at delivering high-quality, career-based education to multiple adult-learner audiences.

Develop and Deliver Different Education Program Offerings. We intend to develop and deliver different education program offerings that we believe offer graduates attractive returns on their educational investments.

As part of this strategy, we intend to further diversify our offerings by developing new education programs in both technology and non-technology fields, but primarily in technology- and healthcare-related disciplines. We believe that those programs of study will be at different education levels and delivered in a variety of formats, including entirely in residence, entirely online or partially in residence and partially online. In 2013, we began offering two new education programs and increased the number of our campuses that offer bachelor degree programs from 133 to 134.

We also believe that we should increase the number of education programs that we offer to our students across our campuses. In 2013, we added a total of 348 associate and bachelor degree programs among 104 campuses.

We believe that developing new programs of study, delivering programs in different formats and increasing the number of programs from which prospective students may choose, can:

• attract more, and a broader base of, students to our institutions;

• motivate current students to extend their studies;

• help improve student outcomes;

• increase the value proposition of our programs of study to our students;

• increase access to high-quality, career-based education; and

• improve the utilization of our facilities.

Improve Student Outcomes. We strive to improve the graduation and graduate employment rates of our ITT Technical Institute and DWC students by:

• providing academic and career services;

• dedicating administrative resources to those services;

• increasing our students’ engagement in their programs of study;

• enhancing the relevancy of our educational offerings;

• assessing student achievement and learning; and

• increasing our students’ access to financial aid.

Provide Education-Related Services. We plan to continue to develop and provide education-related services to students and other constituencies. These services may involve a variety of activities. Through the CPD, we are offering training programs to career advancers and other professionals. We are delivering assessments, consulting and authorized and customized training programs and curricula in the areas of information technology (“IT”), information technology infrastructure library (“ITIL”), development, business analysis, project management and leadership development. On January 31, 2014, we acquired certain assets and assumed certain liabilities of Great Equalizer, Inc. and CompetenC Solutions, Inc., two companies that offered short-term IT and business learning solutions for career advancers and other professionals, primarily under the name of Ascolta. We are integrating these acquired operations in the CPD.

In August 2014, we became the education management organizer (“EMO”) for a public charter high school in Michigan, which will offer high school students an opportunity to concurrently earn both a high school diploma and an associate degree. These services are being offered under The Early Career Academy @ ITT Technical Institute (“Early Career Academy”) name.

Programs of Study

As of December 31, 2013, the ITT Technical Institutes were offering 52 education programs in various fields of study across the following schools of study:

• Business;

• Drafting and Design;

• Electronics Technology;

-3-

• Criminal Justice;

• IT; and

• Breckinridge School of Nursing and Health Sciences.

We design our education programs to help graduates prepare for careers in various fields by offering students a broad-based foundation in a variety of skills used in those fields. The following table sets forth examples of various fields involving the subject matter of education programs within a particular school of study in which graduates have obtained entry-level positions:

School of Study	Fields
Business	accounting
	business administration
	financial services
	manufacturing
	marketing and advertising
	sales
Drafting and Design	architectural and construction drafting
	civil drafting
	computer-aided drafting
	electrical and electronics drafting
	industrial engineering technology
	interior design
	landscape architecture
	mechanical drafting
	multimedia communications
Electronics Technology	communications
	computer technology
	electronics product design and fabrication
	industrial electronics
	instrumentation
	telecommunications
Criminal Justice	corrections
	cyber security
	investigations
	security and policing
IT	communications
	network administration
	network technology
	software development
	systems technology
	technical support
Breckinridge School of Nursing and Health Sciences	health information technology medical assisting and administration nursing

At the vast majority of our campuses, we generally organize the academic schedule for education programs of study on the basis of four 12-week academic quarters in a calendar year, with new students beginning at the start of each academic quarter. At these campuses, students taking a full-time course load can complete our associate degree programs in seven or eight academic quarters, bachelor degree programs in 14 or 15 academic quarters and a master degree program in seven academic quarters. We typically offer classes in most residence education programs in:

• 3.5- to 5.5-hour sessions three days a week, Monday through Saturday, with all program courses taught entirely or partially in residence; or

• sessions that are scheduled two to three days a week, Monday through Saturday, with certain program courses taught entirely or partially online over the Internet most academic quarters.

Depending on student enrollment, class sessions at the vast majority of our ITT Technical Institute campuses are generally available during the day and evening. The courses for education programs that are taught online over the Internet are delivered through an asynchronous learning network and have a prescribed schedule for completion of the coursework. At the vast majority of our ITT Technical Institute campuses, the class schedule for our education program residence courses and the coursework completion schedule for our education program online courses generally provide students with the flexibility to maintain employment concurrently with their studies. Based on student surveys, we believe that a majority of our ITT Technical Institute students work at least part-time during their programs of study.

-4-

Most of our education programs of study blend traditional academic content with applied learning concepts and have the objective of helping graduates prepare for a changing economic and/or technological environment. A significant portion of most education programs offered at our campuses involves practical study in a lab environment.

The learning objectives of most courses in each education program are substantially the same among the vast majority of our campuses to provide greater uniformity and to better enable students to transfer, if necessary, to other ITT Technical Institute campuses offering the same programs with less disruption to their education. We regularly review each curriculum to respond to changes in technology and industry needs. Each of the ITT Technical Institutes establishes an advisory committee for each field of study for education programs taught at that campus, which is comprised of representatives of local employers and other constituents. These advisory committees assist the ITT Technical Institutes in assessing curricula, equipment and laboratory design, and updating the curricula. In addition to courses directly related to a student’s program of study, our education programs also include general education courses in the humanities, composition, mathematics, the sciences and the social sciences.

Gross tuition for a student entering an undergraduate residence education program at an ITT Technical Institute in December 2013 for 36 quarter credit hours (the minimum course load for a full-time student for an academic year consisting of three academic quarters) was $17,748 for all ITT Technical Institute undergraduate residence education programs, except as adjusted in one state to reflect applicable taxes and fees. Gross tuition for a student entering an undergraduate residence education program at DWC in September 2013 for 24 semester credit hours (the minimum course load for a full-time student for an academic year consisting of two academic semesters) was $15,630 for all DWC undergraduate residence education programs. The gross tuition amounts discussed above do not reflect institutional scholarships and awards, which reduce the amount of gross tuition that students pay to attend our institutions. In the academic year beginning in December 2013 and ending in September 2014, we believe that institutional scholarships and awards for ITT Technical Institute students will average approximately $3,282 per student, based on the number of students enrolled in education programs in each of the three months ended March 31, 2014, June 30, 2014 and September 30, 2014. We have not increased gross tuition rates for our ITT Technical Institute education programs of study since 2010, and we do not intend to increase gross tuition rates for our ITT Technical Institute education programs of study in 2014. The majority of students attending residence programs at our campuses lived in that campus’ metropolitan area prior to enrollment. The only student housing that we provide is at the Nashua, New Hampshire campus of DWC.

As of December 31, 2013, the CPD was offering 293 training programs in the following areas:

•     IT	•     Leadership development
•     ITIL	•     Professional development
•     Development	•     Business software application
•     Business analysis	•     Process and productivity
•     Project management	•     Graphic design and media

The length of these programs ranges from four hours to 40 hours. These programs are taught primarily through instructor-led sessions delivered in person and virtually.

Student Recruitment

With respect to education programs offered at the ITT Technical Institute and DWC, we strive to attract students with the motivation and ability to complete the career-oriented educational programs. To generate interest among potential students, we engage in a broad range of activities to inform potential students and their parents about our campuses and the programs they offer. These activities include television, Internet and other media advertising, social media, direct mailings and high school presentations. As of December 31, 2013, we employed approximately 1,400 full- and part-time recruiting representatives to assist in recruiting efforts.

Recruiting representatives pursue expressions of interest from potential students for our residence education programs by contacting prospective students and arranging for interviews at the campus or any learning site of that campus. Occasionally, we also pursue expressions of interest from students for our residence education programs by contacting them and arranging for their attendance at a seminar providing information about the campus and its programs. We pursue expressions of interest from potential students for our online education programs by providing program and resource information on our websites and through telephone calls, electronic mail, social media and postal delivery.

Student recruitment activities are subject to substantial regulation at both the state and federal level and by our accrediting commissions. Certain states have bonding and licensing requirements that apply to many of our representatives and other employees involved in student recruitment. Our National Director of Recruitment and Regional Directors of Recruitment oversee the implementation of recruitment policies and procedures. In addition, our compliance department reviews student recruiting practices at each of our campuses on at least an annual basis.

Representatives of the CPD periodically communicate with national and local employers, primarily through face-to-face meetings, phone calls and emails, to identify their training needs. These needs arise through new IT systems implementations,

-5-

employee turnover, and a desire by employers and employees to expand their skills. The CPD also hosts informational webinars and conferences that help identify training opportunities. Additionally, individuals and employers contact the CPD through information found on its website.

Student Admission and Retention

We require all applicants for admission to any of our campus’ education programs to have a high school diploma or a recognized equivalent. Depending on the program of study and the campus, applicants may also be required to:

• pass an admission examination;

• possess a designated number of credit hours or degree with a specified overall cumulative grade point average from an accredited postsecondary educational institution;

• complete the Scholastic Assessment Test or American College Testing examination; and

• tour the campus.

The following table sets forth the demographics of students at the ITT Technical Institutes as of the dates indicated:

	Approximate Percent of Student Census
Student Demographics	December 31, 2013			December 31, 2012
Age
19 or less		3	%		4	%
20 through 24		25	%		27	%
25 through 30		29	%		29	%
31 or over		43	%		40	%
Gender
Male		72	%		72	%
Female		28	%		28	%
Race
Caucasian		43	%		45	%
Other (1)		57	%		55	%

(1) Based on applicable federal classifications.

The faculty and staff at each of our campuses strive to help students overcome obstacles to the completion of their education programs. As is the case in other postsecondary institutions, however, students often fail to complete their education programs for a variety of personal, financial or academic reasons. Student withdrawals prior to education program completion not only affect the students, they also have a negative regulatory and financial effect on the campus and the entire institution. To minimize these student withdrawals, each of our campuses devotes staff resources to assist and advise students regarding academic and financial matters. We encourage academic advising and tutoring in the case of students experiencing academic difficulties. We also offer assistance and advice to students in our residence education programs who are looking for part-time employment and housing.

The CPD assesses a prospective student’s skill set and goals to determine the program that would best meet the individual’s objectives and experience before enrolling a student in a program.

Graduate Employment

We believe that the success of our ITT Technical Institute and DWC graduates who begin their careers in fields involving their education programs is critical to the ability of our campuses to continue to recruit students for our education programs. We try to obtain data on the number of students employed following graduation from an ITT Technical Institute or DWC. The reliability of such data depends largely on information that students and employers report to us. Based on this information, we believe that approximately 70% of the Employable Graduates (as defined below) in 2013 had obtained employment by April 30, 2014 in positions that required the direct or indirect use of skills taught in their education programs, compared to approximately 66% of the Employable Graduates in 2012 who had obtained employment by April 30, 2013.

“Employable Graduates” are defined in accordance with the graduate employment metrics that we are required to report by one of the accrediting commissions that accredits our institutions and include all of the graduates from the ITT Technical Institutes’ education programs in the applicable year, except for those graduates who:

• were pregnant, died or suffered other health-related conditions that prevented them from working;

• continued their education;

• were engaged in active U.S. military service;

• moved out of the United States with a spouse or parent who was engaged in active U.S. military service;

• were incarcerated in a correctional institution (other than a half-way house) for more than 30 consecutive days; or

• possessed visas that did not permit them to work in the United States following graduation.

-6-

Each of our campuses employs personnel to offer career services to students and graduates from our education programs. These persons assist in job searches, solicit employment opportunities from employers and provide information on job search techniques, where to access employer information, writing resumes and how to prepare for, appear at and conduct oneself during job interviews.

Based on information from graduates and employers who responded to our inquiries, the reported annualized salaries initially following graduation averaged approximately $33,398 for the Employable Graduates in 2013 who, as of April 30, 2014, had obtained employment in positions that required the direct or indirect use of skills taught in their education programs, compared to approximately $32,612 for the Employable Graduates in 2012 who, as of April 30, 2013, had obtained employment in positions that required the direct or indirect use of skills taught in their education programs. The average annual salary initially following graduation for our Employable Graduates may vary significantly among the ITT Technical Institutes depending on local employment conditions and each Employable Graduate’s particular education program, background, prior work experience and willingness to relocate. Initial employers of Employable Graduates from education programs at the ITT Technical Institutes include small, medium and large companies and governmental agencies.

Faculty

We hire faculty members for our education programs in accordance with criteria established by us, the accrediting commissions that accredit our campuses and the state education authorities that regulate our campuses. We hire faculty with relevant work experience and/or academic credentials to teach most technical subjects. Faculty members for our education programs at each campus typically include the chairperson for each school or education program and various categories of instructors, including full-time and adjunct.

Administration and Employees

Each of our campuses is managed by a person who has overall responsibility for the operation of the campus. The administrative staff of each campus also includes managers in the major functional areas of that campus, including recruitment, finance, registration, academics and career services. As of December 31, 2013, we had approximately 4,900 full-time and 4,600 part-time employees. None of our employees are represented by labor unions.

Our headquarters provides centralized services to all of our campuses in the following areas:

•   accounting	•   legal
•   marketing	•   regulatory
•   public relations	•   legislative affairs
•   curricula development	•   real estate
•   management information systems	•   human resources
•   purchasing	•   compliance/internal audit

In addition, national managers of each of the following major campus functions reside at our headquarters and develop policies and procedures to guide these functions at our ITT Technical Institute campuses:

•   recruiting	•   career services
•   financial aid	•   learning resources
•   academic affairs	•   registration

Managers located at our headquarters monitor the operating results of each of our campuses and regularly conduct on-site reviews.

Competition

The postsecondary education and professional training markets in the United States are highly fragmented and competitive, with no single private or public institution enjoying a significant market share. Our campuses compete for students with associate, bachelor and graduate degree-granting institutions, which include public and nonprofit private colleges and proprietary institutions, as well as with alternatives to higher education such as military service or immediate employment. We believe competition among educational institutions is based on the:

• quality and reliability of the institution’s programs and student services;

• reputation of the institution and its programs and student services;

• type and cost of the institution’s programs;

• employability of the institution’s graduates;

• ability to provide easy and convenient access to the institution’s programs and courses;

• quality and experience of the institution’s faculty; and

• time required to complete the institution’s programs.

Certain public and private colleges may offer programs similar to those offered by our campuses at a lower tuition cost due in part to government subsidies, foundation grants, tax deductible contributions, tax-exempt status or other financial resources not available to proprietary institutions. Other proprietary institutions offer programs that compete with those offered by our campuses. Certain of our competitors in both the public and private sectors have greater financial and other resources than we do.

-7-

The CPD competes primarily with local and national providers of IT and business skills training. We believe competition among training providers is based on the:

• quality and reliability of the training provider’s programs;

• reputation of the training provider and its programs;

• type and cost of the training provider’s programs;

• ability to provide easy and convenient access to the training provider’s courses;

• quality and experience of the training provider’s instructors; and

• time required to complete the training provider’s programs.

Federal and Other Financial Aid Programs

In 2013, approximately 82% of our revenue determined on a cash accounting basis under the “90/10 Rule” calculation was from the federal student financial aid programs under Title IV (the “Title IV Programs”) of the Higher Education Act of 1965, as amended (the “HEA”). See “Risk Factors—Risks Related to Our Highly Regulated Industry – One or more of our institutions may lose its eligibility to participate in Title IV Programs, if the percentage of its revenue derived from those programs is too high” for a description of the 90/10 Rule. Our institutions’ students also rely on scholarships and awards, family contributions, personal savings, employment, state financial aid programs, veterans’ and military benefits, internal student financing offered by us, private education loan programs and other resources to pay their educational expenses associated with their education programs. The primary Title IV Programs from which the students at our campuses received grants, loans and other aid to fund the cost of their education programs in 2013 included:

• the William D. Ford Federal Direct Loan (the “FDL”) program, which represented, in aggregate, approximately 58% of our cash receipts; and

• the Federal Pell Grant (the “Pell”) program, which represented, in aggregate, approximately 24% of our cash receipts.

Other sources of financial aid used by our students to help pay the cost of their education in 2013 associated with their education programs included:

• state financial aid programs, veterans’ and military service member benefit programs and other sources, which represented, in aggregate, approximately 15% of our cash receipts;

• employment, personal savings and family contributions, which represented, in aggregate, approximately 3% of our cash receipts; and

• private education loan programs, which represented an insignificant amount of our cash receipts.

Institutional scholarships and awards, which our students use to help reduce their educational expenses, amounted to, in aggregate, approximately $171.2 million in 2013. Institutional scholarships and awards for ITT Technical Institute students averaged approximately $2,836 per student in the year ended December 31, 2013, based on the number of students enrolled in education programs in each of the three months ended March 31, 2013, June 30, 2013, September 30, 2013 and December 31, 2013. We also provided internal student financing to our students in 2013, which consists of non-interest bearing, unsecured credit extended to our students. The amount of internal student financing that we have provided has decreased and will continue to decrease significantly, as the amount of institutional scholarships and awards that our students receive increases.

We believe that the employers of the vast majority of individuals enrolled in the training programs offered through the CPD pay for the individuals’ costs of those programs either directly to the CPD or through employee reimbursements.

Highly Regulated Industry

The training programs offered through the CPD require approval from certain state education agencies and the accrediting commission that accredits our ITT Technical Institutes. Individuals who enroll in the training programs offered by the CPD are not eligible to receive funds under the Title IV Programs for those training programs. The discussion in the remainder of this section applies to the ITT Technical Institutes and DWC, and the education programs offered by those institutions.

        Our institutions are subject to extensive regulation by the ED, the state education and professional licensing authorities (collectively, the “SAs”) and the accrediting commissions that accredit our institutions (the “ACs”). The statutes, regulations and standards applied by the ED, SAs and ACs are periodically revised and the interpretations of existing requirements are periodically modified. We cannot predict how any of the statutes, regulations and standards applied by the ED, SAs and ACs will be interpreted and implemented.

At the federal level, the HEA and the regulations promulgated under the HEA by the ED set forth numerous, complex standards that institutions must satisfy in order to participate in Title IV Programs. To participate in Title IV Programs, an institution must:

• receive and maintain authorization by the appropriate SAs;

• be accredited by an accrediting commission recognized by the ED; and

• be certified as an eligible institution by the ED.

-8-

The purposes of these standards are to, among other things:

• limit institutional dependence on Title IV Program funds;

• prevent institutions with unacceptable student loan default rates from participating in Title IV Programs; and

• in general, require institutions to satisfy certain criteria related to educational value, administrative capability and financial responsibility.

Most of the ED’s requirements are applied on an institutional basis, with an institution defined by the ED as a main campus and its additional locations, if any. Under the ED’s definition, we had three institutions as of December 31, 2013, comprised of two ITT Technical Institute main campuses and one DWC main campus. All of the remaining ITT Technical Institute campuses and the two learning sites are additional locations of the ITT Technical Institute main campuses under the ED’s regulations. As of December 31, 2013, one ITT Technical Institute institution had 142 additional locations and two learning sites and the second ITT Technical Institute institution had two additional locations. The HEA requires each institution to periodically renew its certification by the ED to continue its participation in Title IV Programs. As of December 31, 2013, all 147 of our campuses and both learning sites participated in Title IV Programs.

One of the ED’s regulations applicable to our institutions is that each institution must submit to the ED its audited, consolidated financial statements and a compliance audit of the institution’s administration of the Title IV Programs in which it participates (“Compliance Audit”), in each case with respect to a fiscal year within six months of the following year. Our institutions did not submit their 2013 audited consolidated financial statements and Compliance Audits to the ED by June 30, 2014 and, as a result, the ED determined that our institutions are not financially responsible, which resulted in, among other things, our institutions being:

• required to submit a letter of credit payable to the ED;

• placed on heightened cash monitoring by the ED, instead of the ED’s standard advance payment method; and

• provisionally certified by the ED to participate in Title IV Programs.

See “Risk Factors – Risks Related to our Highly Regulated Industry — Our institutions’ failure to submit their audited consolidated financial statements and Compliance Audits to the ED by the due date resulted in sanctions imposed by the ED on our institutions that include, among other things, our institutions having to post a letter of credit, being placed on heightened cash monitoring and being provisionally certified.”

Any one or more of the sanctions or actions described above could have a material adverse effect on our financial condition, results of operations and cash flows. Further, we cannot assure you that we will be able to submit a letter of credit payable to the ED in the amount and for the term required by the ED, or that we will be able to provide the cash collateral required to maintain the letter of credit throughout the required term.

As of December 31, 2013, we operated one or more campuses in 39 states and our campuses recruited students in all 50 states. Each of our campuses must be authorized by the applicable SAs to operate. The state laws and regulations that we must comply with in order to obtain authorization from the SAs are numerous and complex. As of December 31, 2013, each of our campuses had received authorization from one or more SAs.

Campuses that confer bachelor or master degrees must, in most cases, meet additional regulatory standards. Raising the curricula of our existing campuses to the bachelor and/or master degree level requires the approval of the applicable SAs and the ACs.

State education laws and regulations affect our operations and may limit our ability to introduce programs or obtain authorization to operate in some states. If any one of our campuses lost its state authorization to operate in the state in which it is physically located, the campus would be unable to offer postsecondary education and we would be forced to close the campus. Closing multiple campuses for any reason could have a material adverse effect on our financial condition, results of operations and cash flows.

Most of the states in which our institutions are authorized to operate have laws or regulations that require institutions to demonstrate annually that they are financially stable. As a result of the delay in the submission of our 2013 audited consolidated financial statements to our Florida SA, our Florida SA determined on August 5, 2014 that our 13 campuses in Florida are not financially stable. Based on this determination, our Florida SA:

• changed the authorization to operate for each of our Florida campuses from an annual license to a provisional license;

• will conduct an on-site visit of each of our Florida campuses to determine the campus’ compliance with the Florida SA’s regulations;

• will require each of our Florida campuses to correct any deficiencies noted during our Florida SA’s on-site visit of the campus;

• required us to submit to our Florida SA any correspondence that we or any of our institutions have with the ED or the AC of our Florida campuses, within 15 days of the submission or receipt of that correspondence;

-9-

• required each of our Florida campuses to submit a train-out plan to our Florida SA on or before September 4, 2014; and

• required us to report to our Florida SA, at its September 2014 meeting, on the stability of our Florida campuses and any changes that may further affect our stability or operations.

Each campus’ provisional license extends through July 31, 2015. Upon the satisfaction of all of the requirements specified above, however, each campus may apply to our Florida SA to have the campus’ authorization changed back to an annual license. We cannot assure you, however, that our Florida campuses will be able to satisfy all of the requirements specified above, or that our Florida SA will change any of the campuses back to an annual license. See “Risk Factors – Risks Related to Our Highly Regulated Industry – Failure of our campuses 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 campuses.”

State authorization and accreditation by an accrediting commission recognized by the ED are required for an institution to become and remain eligible to participate in Title IV Programs. In addition, some states require institutions operating in the state to be accredited as a condition of state authorization. Both of our ITT Technical Institute institutions are accredited by the Accrediting Council for Independent Colleges and Schools (the “ACICS”). DWC is accredited by the Commission on Institutions of Higher Education of the New England Association of Schools and Colleges (the “NEASC”). Both the ACICS and the NEASC are accrediting commissions recognized by the ED. The HEA specifies a series of criteria that each recognized accrediting commission must use in reviewing institutions. For example, accrediting commissions must assess the length of each academic program offered by an institution in relation to the objectives of the degrees or diplomas offered. Further, accrediting commissions must evaluate each institution’s success with respect to student achievement.

Under the ACICS standards, if the student retention or graduate placement rates:

• of a campus fall below the ACICS benchmark standards, the campus must develop and implement a campus improvement plan and periodically report its results to the ACICS;

• of a campus fall below the ACICS compliance standards, the campus must come into compliance within a specified time period, or the ACICS may withdraw the campus’ inclusion in the institution’s grant of accreditation;

• of a program offering at a campus fall below the ACICS benchmark standards, the campus must develop and implement a program improvement plan for that program offering; or

• of a program offering at a campus fall below the ACICS compliance standards, the program offering must come into compliance within a specified time period, or the ACICS may withdraw its authorization of that program offering.

Under the ACICS standards, if the Licensure Examination Pass Rate (as defined below) of a program offering that is subject to that standard at a campus falls below the ACICS:

• benchmark standards, the campus is required to develop and implement a program improvement plan for that program offering; or

• compliance standards, the program offering is required to come into compliance within a specified time period, or the ACICS may withdraw its authorization of that program offering.

A program offering is subject to the Licensure Examination Pass Rate standard, if graduates of the program of study who seek employment are required to have a certificate, licensure or registration based on an industry-sponsored examination in the applicable field.

A campus that falls below the ACICS:

• benchmark standards is not required to obtain permission from the ACICS prior to applying to add a new program offering; or

• compliance standards is required to obtain permission from the ACICS prior to applying to add a new program offering.

The ACICS has classified one of our ITT Technical Institute institutions, which consists of a main campus and 142 additional locations and two learning sites, as a centrally controlled institution under the ACICS criteria (the “Centrally Controlled Institution”). During 2013, the ACICS evaluated the Centrally Controlled Institution for a renewal grant of accreditation. In April 2013, the ACICS extended the Centrally Controlled Institution’s current grant of accreditation through December 31, 2017. In 2013, the ACICS also approved 15 ITT Technical Institute locations for inclusion in the Centrally Controlled Institution’s grant of accreditation. Neither of our two ITT Technical Institute institutions are on probation with the ACICS, but:

• 49 ITT Technical Institute locations are subject to a campus improvement plan and reporting requirements with respect to the locations’ Student Retention Rates (as defined below) by the ACICS;

• 63 ITT Technical Institute locations are subject to a campus improvement plan and reporting requirements with respect to the locations’ Graduate Placement Rates (as defined below) by the ACICS;

• one ITT Technical Institute location needs to raise its Student Retention Rate to at least 60% by November 1, 2015, or the ACICS may withdraw that location’s inclusion in the institution’s grant of accreditation;

-10-

• five ITT Technical Institute locations need to raise their Graduate Placement Rates to at least 60% by November 1, 2015, or the ACICS may withdraw those locations’ inclusion in the institution’s grant of accreditation;

• a total of 351 program offerings at 124 ITT Technical Institute locations are subject to a program improvement plan with respect to the Student Retention Rates of those program offerings by the ACICS;

• a total of 476 program offerings at 129 ITT Technical Institute locations are subject to a program improvement plan with respect to the Graduate Placement Rates of those program offerings by the ACICS;

• a total of eight program offerings at eight ITT Technical Institute locations are subject to a program improvement plan with respect to the Licensure Examination Pass Rates of those program offerings by the ACICS;

• a total of 87 program offerings at 61 ITT Technical Institute locations need to raise their Student Retention Rates to at least 60% by November 1, 2015, or the ACICS may withdraw its authorization of those program offerings (although we have discontinued and are no longer enrolling new students in 18 of those program offerings);

• a total of 158 program offerings at 86 ITT Technical Institute locations need to raise their Graduate Placement Rates to at least 60% by November 1, 2015, or the ACICS may withdraw its authorization of those program offerings (although we have discontinued and are no longer enrolling new students in 141 of those program offerings); and

• a total of four program offerings at four ITT Technical Institute locations need to raise their Licensure Examination Pass Rates to at least 60% by November 1, 2015, or the ACICS may withdraw its authorization of those program offerings.

In November 2013, the ACICS began considering mitigating circumstances when applying its Student Retention Rate, Graduate Placement Rate and the Licensure Examination Pass Rate compliance standards to its accredited institutions’ campuses and programs (“Mitigating Circumstances”). The Mitigating Circumstances include, among others:

• the impact on the Student Retention Rate of certain demographics of more than 50% of the students attending the campus or program;

• the impact on the Student Retention Rate of withdrawing students who re-enroll in the affected campus or program within a certain period of time;

• at least 30% of the graduates of the campus or program having less than six months from their date of graduation or licensure receipt, until the ACICS reporting date for the Graduate Placement Rate; and

• the three-year average (weighted based on student enrollment) of the campus’ or program’s Student Retention Rate, Graduate Placement Rate or Licensure Examination Pass Rate being above that rate’s compliance standard percentage.

If the ACICS determines that its Mitigating Circumstances apply to an institution’s campus or program, the ACICS waives the application of the compliance standard to the institution’s campus or program. The ACICS has granted Mitigating Circumstances waivers to a total of:

• one ITT Technical Institute location with respect to the Student Retention Rate compliance standard;

• nine ITT Technical Institute locations with respect to the Graduate Placement Rate compliance standard;

• six program offerings at six ITT Technical Institute locations with respect to the Student Retention Rate compliance standard; and

• four program offerings at three ITT Technical Institute locations with respect to the Graduate Placement Rate compliance standard.

The number of ITT Technical Institute locations and program offerings that received Mitigating Circumstances waivers from the ACICS are not included in the number of ITT Technical Institute locations and program offerings specified above that are subject to having the locations’ inclusion in the institution’s grant of accreditation withdrawn or the program offerings’ authorizations withdrawn for failure to comply with the Student Retention Rate and Graduate Placement Rate compliance standards.

“Student Retention Rate” is defined by the ACICS as Adjusted Total Enrollment (as defined below), less All Other Withdrawals (as defined below), divided by Adjusted Total Enrollment. “Adjusted Total Enrollment” is defined by the ACICS as total student enrollment in the program of study during the reporting period, less the number of any of those students who withdrew to enroll in another institution under common ownership. “All Other Withdrawals” is defined by the ACICS as the number of students enrolled in the program of study during the reporting period who withdrew from the program of study for a reason other than the student’s:

• call to active duty in the U.S. military;

• enrollment in another institution under common ownership;

• incarceration; or

• death.

“Graduate Placement Rate” is defined by the ACICS as the number of Employable Graduates who were employed in a position that required the direct or indirect use of the skills taught in the program of study during the reporting period, divided by the total number of Employable Graduates.

-11-

“Licensure Examination Pass Rate” is defined by the ACICS as the number of graduates or completers of a program of study that is subject to the Licensure Examination Pass Rate standard who attempted the examination and received a score necessary to obtain the required certificate, licensure or registration during a calendar year, divided by the number of graduates or completers of that program of study who attempted the applicable examination during that calendar year.

If any of our ITT Technical Institute locations and/or program offerings fall below the Student Retention Rate, Graduate Placement Rate or Licensure Examination Pass Rate compliance standards and we are unable to timely bring those locations and/or program offerings into compliance, we may have to close those locations and reduce the offerings of those programs, which could have a material adverse effect on our expansion plans, financial condition, results of operations and cash flows.

DWC was subject to a notice of concern from the NEASC with respect to DWC’s financial condition from June 2009, when we acquired DWC, until April 2011. The NEASC reinstated the notice of concern with respect to DWC’s financial condition in March 2013. During 2013 and the first quarter of 2014, the NEASC evaluated DWC in connection with its financial condition, but the NEASC did not remove the notice of concern.

The statutes, regulations and standards applied by the ED, SAs and ACs cover the vast majority of our operations, including our:

• academic affairs;

• educational programs;

• facilities;

• academic and administrative staff;

• administrative procedures;

• marketing;

• student recruitment;

• compensation practices; and

• financial operations and financial condition.

These requirements also affect our ability to:

• add new campuses and learning sites;

• add new, or revise or expand our existing, educational programs; and

• change our corporate structure and ownership.

Each of the campuses that we added from 2010 through 2012 constitutes an additional location under the ED’s regulations. The HEA requires a proprietary institution to operate for two years before it can qualify to participate in Title IV Programs. If an institution that is certified to participate in Title IV Programs establishes an additional location and receives all of the necessary SA and AC approvals for that location, that additional location can participate in Title IV Programs immediately upon being reported to the ED, unless the institution will offer at least 50% of an entire educational program at that location and any one of the following restrictions applies, in which case the ED must approve the additional location before it can participate in Title IV Programs:

• the institution is provisionally certified to participate in Title IV Programs;

• the institution receives Title IV Program funds under the ED’s heightened cash monitoring or reimbursement system of payment;

• the institution acquired the assets of another institution that provided educational programs at that location during the preceding year and participated in Title IV Programs during that year;

• the institution would be subject to loss of eligibility to participate in Title IV Programs, because the additional location lost its eligibility to participate in Title IV Programs as a result of high student loan cohort default rates under the Federal Family Education Loan (“FFEL”) and/or the FDL programs; or

• the ED previously notified the institution that it must apply for approval to establish an additional location.

        Due to our institutions’ failure to submit their 2013 audited consolidated financial statements and Compliance Audits to the ED by June 30, 2014, all of our institutions are provisionally certified to participate in the Title IV Programs. See “Risk Factors—Risks Related to Our Highly Regulated Industry – Our institutions’ failure to submit their audited consolidated financial statements and Compliance Audits to the ED by the due date resulted in sanctions imposed by the ED on our institutions that include, among other things, our institutions having to post a letter of credit, being placed on heightened cash monitoring and being provisionally certified.” Our institutions’ participation in Title IV Programs will remain provisional, until at least November 4, 2019. In August 2014, the ED determined that our institutions did not satisfy the ED’s eligibility standards relating to financial responsibility, because our institutions failed to submit their 2013 audited consolidated financial statements and Compliance Audits to the ED by June 30, 2014.

The HEA and its implementing regulations require each institution to periodically reapply to the ED for continued certification to participate in Title IV Programs. The ED recertifies each institution deemed to be in compliance with the HEA and the ED’s regulations for a period of six years or less. Before that period ends, the institution must apply again for

-12-

recertification. The current provisional certifications of our three institutions expire on June 30, 2017. If an institution successfully participates in Title IV Programs during its period of provisional certification, but fails to satisfy the full certification criteria, the ED may renew the institution’s provisional certification. The ED has informed our institutions that, due to their failure to submit their 2013 audited consolidated financial statements and Compliance Audits to the ED by June 30, 2014, the ED will not consider our institutions to have satisfied the ED’s eligibility standards relating to financial responsibility before November 4, 2019. As a result, our institutions’ participation in the Title IV Programs will continue to be provisional, if our institutions are recertified when their current provisional certifications expire on June 30, 2017.

The ED may revoke an institution’s provisional certification without advance notice, if the ED determines that the institution is not fulfilling all material requirements. If the ED revokes an institution’s provisional certification, the institution may not apply for reinstatement of its eligibility to participate in Title IV Programs for at least 18 months. If the ED does not recertify the institution following the expiration of its provisional certification, the institution loses eligibility to participate in Title IV Programs, until the institution reapplies to participate and the ED certifies the institution to participate.

The HEA and applicable regulations permit students to use Title IV Program funds only to pay the cost associated with enrollment in an eligible program offered by an institution participating in Title IV Programs. A proprietary institution that is eligible to participate in Title IV Programs can generally add a new educational program without the ED’s approval, if that new program:

• leads to an associate level or higher degree and the institution already offers programs at that level; or

• prepares students for gainful employment in the same or a related occupation as an educational program that had been previously designated as an eligible program at the institution and meets minimum length requirements.

Otherwise, the proprietary institution has to obtain the ED’s approval before it can disburse Title IV Program funds to students enrolled in the new program. Any institution provisionally certified by the ED, however, must apply for and receive approval by the ED for any substantial change before the institution can award, disburse or distribute Title IV Program funds based on the substantial change. Substantial changes generally include, but are not limited to:

• the establishment of an additional location;

• an increase in the level of academic offering beyond those listed in the institution’s Eligibility and Certification Approval Report with the ED;

• an addition of any eligible non-degree education program or short-term training program; or

• an addition of a degree program by a proprietary institution.

If an institution applies for the ED’s approval of a substantial change, the institution must demonstrate that it has the financial and administrative resources necessary to assure the institution’s continued compliance with the ED’s standards of financial responsibility and administrative capability.

If we are unable to obtain the required approvals from the ED for any new campuses or learning sites, or any new program offerings, or to obtain those approvals in a timely manner, our ability to operate the new campuses, add the learning sites or offer new programs as planned would be impaired, which could have a material adverse effect on our expansion plans. See “Risk Factors—Risks Related to Our Highly Regulated Industry – We cannot operate new campuses, add learning sites or offer new programs, if they are not timely authorized 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 authorization.”

The accreditation standards of our ACs generally permit an institution’s main campus to establish additional campuses. Our campuses that are treated as additional locations of the main campus under the ED’s regulations and the ACICS accreditation standards are treated as branch campuses under the accreditation standards of the NEASC. Our learning sites are classified as additional locations of the main campus under the ED’s regulations, as campus additions under the ACICS accreditation standards, and as instructional locations of the main or branch campus under the NEASC accreditation standards.

The laws and regulations in most of the states in which our campuses are located treat each of our campuses as a separate, unaffiliated institution and do not distinguish between main campuses and additional locations or branch campuses, although many states recognize other locations within the state where educational activities are conducted and/or student services are provided as learning sites, teaching sites, satellite campuses or otherwise. In some states, the requirements to obtain state authorization limit our ability to establish new campuses, add learning sites or instructional locations, offer new programs, recruit and offer online programs.

The internal audit function of our compliance department reviews our campuses’ compliance with Title IV Program requirements and conducts an annual compliance review of each of our campuses. The review addresses numerous compliance areas, including:

• student tuition refunds and return of Title IV Program funds;

• student academic progress;

• student admission;

• student attendance;

-13-

• student financial aid applications;

• student financial aid awards and disbursements; and

• graduate employment.

Each of our institutions’ administration of Title IV Program funds must also be audited annually by an independent accounting firm, and the resulting audit report must be submitted to the ED for review.

Due to the highly regulated nature of the postsecondary education industry, we are subject to audits, reviews, inquiries, complaints, investigations, claims of non-compliance or lawsuits by federal and state governmental agencies, guaranty agencies, the ACs, present and former students and employees, shareholders and other third parties, which may allege violations of statutes, regulations or accreditation standards or common law causes of action (collectively, “Claims”). If the results of any Claims are unfavorable to us, we may be required to pay money damages or be subject to fines, penalties, injunctions, operational limitations, loss of eligibility to participate in federal or state financial aid programs, debarments, additional oversight and reporting, other civil and criminal penalties or other censure that could have a material adverse effect on our financial condition, results of operations and cash flows. Even if we satisfactorily resolve the issues raised by a Claim, we may have to expend significant financial and management resources, which could have a material adverse effect on our financial condition, results of operations and cash flows. Adverse publicity regarding a Claim could also negatively affect our business.

See “Risk Factors – Risks Related to Our Highly Regulated Industry” for a discussion of particular risks associated with our highly regulated industry.

Shareholder Information

We make the following materials available free of charge through our website at www.ittesi.com as soon as reasonably practicable after such materials are electronically filed with or furnished to the SEC under the Exchange Act:

• our annual reports on Form 10-K and all amendments thereto;

• our quarterly reports on Form 10-Q and all amendments thereto;

• our current reports on Form 8-K and all amendments thereto; and

• various other filings that we make with the SEC.

You should be aware that this Annual Report on Form 10-K was filed with the SEC after the applicable filing deadline. In addition, the filing deadlines for our Quarterly Report on Form 10-Q for the fiscal quarter ended:

• March 31, 2014 (“2014 First Quarter Form 10-Q”), was May 12, 2014; and

• June 30, 2014 (“2014 Second Quarter Form 10-Q”), was August 11, 2014.

We have not yet filed the 2014 First Quarter Form 10-Q or 2014 Second Quarter Form 10-Q with the SEC. We are working diligently to finalize and file the 2014 First Quarter Form 10-Q and 2014 Second Quarter Form 10-Q as soon as practicable, but we cannot assure you as to the actual filing date. We have also amended our Quarterly Reports on Form 10-Q for the fiscal quarters ended March 31, 2013, June 30, 2013 and September 30, 2013, due to our restatement of the unaudited condensed consolidated financial statements contained therein. Failure to timely file our quarterly reports with the SEC and the fact that we have restated our consolidated financial statements may have negative consequences. See “Risk Factors – Risks Related to Recent Developments.”

We also make the following materials available free of charge through our website at www.ittesi.com:

• our Corporate Governance Guidelines;

• the charter for each of the Audit, Compensation, and Nominating and Corporate Governance Committees of our Board of Directors; and

• our Code of Business Conduct and Ethics (“Code”).

We will provide a copy of the following materials without charge to anyone who makes a written request to our Investor Relations Department at ITT Educational Services, Inc., 13000 North Meridian Street, Carmel, Indiana 46032-1404 or by e-mail through our website at www.ittesi.com:

• our annual report on Form 10-K for the year ended December 31, 2013, excluding certain of its exhibits;

• our Corporate Governance Guidelines;

• the charter for each of the Audit, Compensation, and Nominating and Corporate Governance Committees of our Board of Directors; and

• the Code.

We also intend to promptly disclose on our website at www.ittesi.com any amendments that we make to, or waivers for our Directors or executive officers that we grant from, the Code.

-14-

Item 1A. Risk Factors.

In addition to the other information contained in this report, you should consider carefully the following risk factors in evaluating us and our business before making an investment decision with respect to any shares of our common stock. This report contains certain statements that constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. These forward-looking statements are based on the beliefs of, as well as assumptions made by and information currently available to, our management. All statements which are not statements of historical fact are intended to be forward-looking statements. The forward-looking statements contained in this report reflect our or our management’s current views and are subject to certain risks, uncertainties and assumptions, including, but not limited to, those set forth in the following Risk Factors. Should one or more of those risks or uncertainties materialize or should underlying assumptions prove incorrect, our actual results, performance or achievements in 2014 and beyond could differ materially from those expressed in, or implied by, those forward-looking statements.

Risks Related to Recent Developments

Our management has identified material weaknesses in our internal control over financial reporting, which could, if not remediated, result in material misstatements in our future financial statements and may adversely affect our business and stock price. Our management is responsible for establishing and maintaining adequate internal control over financial reporting (“ICFR”), as defined in Rule 13a-15(f) under the Exchange Act. As disclosed in Part II, Item 9A, “Controls and Procedures” of this Annual Report on Form 10-K, our management identified material weaknesses in our ICFR related to:

• the assessment of events that could affect the determination of whether we are the primary beneficiary of variable interest entities in which we hold a variable interest;

• the assessment of the completeness and accuracy of the data maintained by the servicer of the private education loans that are owned by a variable interest entity that we were required to consolidate;

• the review of assumptions and methodologies developed by third-party consultants to project guarantee obligations under the 2009 RSA (as defined below); and

• the timely identification and communication of information relevant to the private education loan programs to those members of our management who are responsible for our financial reporting processes.

A material weakness is defined as a deficiency, or combination of deficiencies, in ICFR, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. As a result of the material weaknesses discussed above, our management concluded that our ICFR was not effective as of December 31, 2013. We cannot assure you that additional material weaknesses in our ICFR will not be identified in the future. Although we are implementing remedial measures designed to address the identified material weaknesses, if our remedial measures are insufficient to address the material weaknesses, or if additional material weaknesses or significant deficiencies in our ICFR are discovered or occur in the future, our consolidated financial statements may contain material misstatements. These misstatements could result in additional restatements of our consolidated financial statements, cause us to fail to meet our reporting obligations, lead to a default under our credit agreement, reduce our ability to obtain financing, increase the cost of any financing that we obtain or cause investors to lose confidence in our reported financial information, which could lead to a decline in our stock price.

Although we are working to remedy the ineffectiveness of our ICFR, there can be no assurance as to when the remediation plan will be fully implemented or the aggregate cost of implementation. Until our remediation plan is fully implemented and considered complete, our management will continue to devote significant time and attention to these efforts. If we do not complete our remediation in a timely fashion, or at all, or if our remediation plan is inadequate, there will continue to be an increased risk that we will be unable to timely file future periodic reports with the SEC and that our future consolidated financial statements could contain errors that will be undetected. For more information relating to our ICFR (and disclosure controls and procedures) and the remediation plan undertaken by us, see Part II, Item 9A, “Controls and Procedures.”

Matters relating to or arising from our review of accounting matters related to two third-party private education loan programs made available to our students may adversely affect our business, results of operations and cash flows. As previously disclosed, a number of factors, including SEC’s investigation of us related to our actions and accounting associated with, among other things, two third-party private education loan programs made available to our students, have led to us conducting additional analyses and reviews with respect to accounting matters related to those programs. As a result of such additional analyses and reviews, the Audit Committee of our Board of Directors concluded that the PEAKS Trust should have been consolidated in our consolidated financial statements beginning on February 28, 2013, and that our previously issued unaudited condensed consolidated financial statements as of and for each of the fiscal quarters ended March 31, 2013, June 30, 2013 and September 30, 2013 should be restated. To date, we have incurred significant expenses related to legal, accounting and other professional services in connection with the SEC’s investigation of us, the accounting analyses and the restatement and related matters, and may continue to incur significant additional expenses with regard to those matters and our remediation efforts. In addition, our Chief Executive Officer and Chief Financial Officer, as well as senior members of our finance and accounting departments, have spent substantial amounts of time and effort with regard to all of those matters. The significant amount of time and effort spent by our management team on those matters has diverted, and is expected to continue to divert, their attention from the operation of our business. The expenses incurred, and expected to be incurred, on those matters, and the diversion of the attention of the management team which has occurred and is expected to continue, have had, and could continue to have, a material adverse effect on our business, financial condition, results of operations and/or cash flows.

-15-

We have restated our prior unaudited condensed consolidated financial statements as of and for each of the fiscal quarters ended March 31, 2013, June 30, 2013 and September 30, 2013, which may lead to additional risks and uncertainties, including shareholder litigation, loss of investor confidence and negative impacts on our stock price. As a result of the determination in June 2014 that the PEAKS Trust should have been consolidated in our consolidated financial statements as of February 28, 2013, we have restated our unaudited condensed consolidated financial statements as of and for each of the fiscal quarters ended March 31, 2013, June 30, 2013 and September 30, 2013. We have incurred significant costs and expenses, and our management’s attention has been diverted, due to the restatements. Restatements may also increase the risk of additional shareholder litigation against us. In addition, the fact that we have restated our unaudited condensed consolidated financial statements may lead to a loss of investor confidence and have negative impacts on the trading price of our common stock.

The New York Stock Exchange could commence procedures to delist our common stock. As a result of our failure to timely file this Annual Report on Form 10-K with the SEC, on March 19, 2014, we received a notice from the New York Stock Exchange (“NYSE”) that we were subject to the procedures set forth in the NYSE’s listing standards related to late filings. In accordance with the NYSE’s procedures, we initially had six months following March 18, 2014 to file this Annual Report on Form 10-K with the SEC. On September 18, 2014, however, the NYSE granted our request for a listing extension, through November 15, 2014. Although we have filed this Annual Report on Form 10-K with the SEC within the extension period, the listing standards of the NYSE provide the NYSE with broad discretion regarding delisting matters. One of the factors described in the NYSE’s listing standards that could lead to a company’s delisting is the failure of the company to make timely, adequate and accurate disclosures of information to its shareholders and the investing public. We have not yet filed with the SEC our 2014 First Quarter Form 10-Q, which was due on May 12, 2014, or our 2014 Second Quarter Form 10-Q, which was due on August 11, 2014, and we have restated our unaudited condensed consolidated financial statements as of and for each of the fiscal quarters ended March 31, 2013, June 30, 2013 and September 30, 2013. We cannot assure you that the NYSE will not commence delisting procedures with respect to our common stock as a result of those and other factors related to us. If the NYSE were to delist our common stock, the delisting could:

• decrease trading in our common stock;

• adversely affect the market liquidity of our common stock;

• decrease the trading price of our common stock;

• increase the volatility of our common stock price;

• decrease analyst coverage of our common stock;

• decrease investor demand and information available concerning trading prices and volume of our common stock;

• make it more difficult for investors to buy or sell our common stock; and

• harm our ability to obtain financing on acceptable terms.

Our failure to prepare and timely file our periodic reports with the SEC limits our access to the public markets to raise debt or equity capital, and could have negative consequences related to our credit agreement. We did not file this Annual Report on Form 10-K, our 2014 First Quarter Form 10-Q and our 2014 Second Quarter Form 10-Q within the timeframe required by the SEC. As a result of our late filings, we may be limited in our ability to access the public markets to raise debt or equity capital, which could prevent us from pursuing transactions or implementing business strategies that we believe would be beneficial to our business. We are ineligible to use shorter and less costly filings, such as Form S-3, to register our securities for sale for a period of 12 months following the month in which we regain compliance with our SEC reporting obligations. Further, if we are not able to furnish to our lenders our condensed consolidated financial statements (and related certificates) as of and for the fiscal quarters ended March 31, 2014 and June 30, 2014 by November 15, 2014, or our condensed consolidated financial statements (and related certificates) as of and for the fiscal quarter ended September 30, 2014 by December 15, 2014, we would be in breach of our credit agreement, which could give rise to material adverse consequences to us. See “— If we default under our Amended Credit Agreement, any borrowings must be repaid, we may be prevented from further borrowings and from obtaining or maintaining a letter of credit and/or the Amended Credit Agreement may be terminated by the lenders, which could have a material adverse effect on our liquidity and ability to comply with our obligations.”

As a result of the Consolidation, our consolidated financial statements are materially different from those that we have previously issued, which could have negative implications for our credit agreement and guarantee obligations and regulatory compliance. Prior to the Consolidation, the PEAKS Trust was not included in our consolidated financial statements. As a result of the Consolidation, beginning on February 28, 2013, our consolidated financial statements are substantially different from the consolidated financial statements that we would present, if we were not required to consolidate the PEAKS Trust. The Consolidation and other factors have resulted in violations of covenants under our credit agreement. Although we have obtained waivers and amendments relating to those violations, we cannot assure you that the financial impact of the Consolidation on our consolidated financial statements in future periods will not violate the covenants under our credit agreement. We may not be able to obtain additional amendments to, or waivers of, those covenants. The Consolidation also negatively impacted our compliance with the ED’s financial responsibility measurements, primarily our institutions’ composite score and our compliance with the financial requirements of certain SAs. The financial impact of the Consolidation on our consolidated financial statements in future periods could also negatively impact our compliance with those measurements and requirements in the future. See “—Risks Related to Our Highly Regulated Industry – We may be subject to sanctions, including, without limitation, an increase in the amount of the ED Letter of Credit and other limitations in order to continue our campuses’

-16-

participation in Title IV Programs, state authorization and accreditation, if we or our campuses do not meet the financial standards of the ED, SAs or ACs,” for a discussion of the impact of the Consolidation on our consolidated financial statements. Further, the Consolidation negatively impacted the financial metrics to which we are subject under the private education loan programs under which we have provided guarantees, resulting in materially increased payment amounts. The financial impact of the Consolidation on our consolidated financial statements in future periods could negatively impact our compliance with those financial metrics in the future, resulting in materially increased payment amounts. Any of these factors could have a material adverse effect on our results of operations, financial condition and/or cash flows.

We believe that we will be required to consolidate the 2009 Entity into our consolidated financial statements in the foreseeable future, which could have a material adverse effect on our consolidated financial statements and our compliance with covenants and metrics to which we are subject. In addition to the PEAKS Trust, we hold a variable interest in an unaffiliated entity (the “2009 Entity”) with which we entered into a risk sharing agreement on February 20, 2009 (the “2009 RSA”). Under the 2009 RSA, we guarantee the repayment of the principal amount (including capitalized origination fees) and accrued interest payable on private education loans that are charged off above a certain percentage, based on the annual dollar volume, of the private education loans made under a program that made private education loans available to our students to help pay our students’ cost of education that student financial aid from federal, state or other sources did not cover (the “2009 Loan Program”). We may become the primary beneficiary of the 2009 Entity and, as a result, be required to consolidate the 2009 Entity in our consolidated financial statements, if the entity that performs the servicing activities for the private education loans made under the 2009 Loan Program on behalf of the 2009 Entity (the “2009 Loan Program Servicer”) fails to meet certain performance criteria specified in the servicing agreement that governs the servicing activities of those loans (the “2009 Servicing Agreement”). If the 2009 Loan Program Servicer fails to meet those performance criteria, we have the right to terminate the 2009 Servicing Agreement and, therefore, would be considered to have the power to direct the activities of the 2009 Entity that most significantly impact the economic performance of the 2009 Entity. If that occurs, we would be required to consolidate the 2009 Entity into our consolidated financial statements.

Based on preliminary loan performance data as of September 30, 2014 that we have received regarding the private education loans made under the 2009 Loan Program, we believe that, as of September 30, 2014, the 2009 Loan Program Servicer may not have met the performance criteria specified in the 2009 Servicing Agreement. As a result, it appears likely that the 2009 Loan Program Servicer either has failed, or within the foreseeable future will fail, to meet the performance criteria in the 2009 Servicing Agreement. Once that occurs, following a cure period and that assuming that no cure occurs, we will have the right to terminate the 2009 Servicing Agreement. As a result of that right, we will be required to consolidate the 2009 Entity into our consolidated financial statements. We believe that our right to terminate the 2009 Servicing Agreement will become operative in late 2014 or early 2015. At this time, we are unable to quantify the impact of the consolidation of the 2009 Entity into our consolidated financial statements, but it could have material adverse effect on our consolidated financial statements. Further, the consolidation of the 2009 Entity into our consolidated financial statements could cause us to violate certain covenants under our credit agreement, financial standards of the ED, SAs and ACs and financial metrics under the 2009 RSA and PEAKS Program to which we are subject. Any of those violations could have a material adverse effect on our results of operations, financial condition and/or cash flows.

If we default under our Amended Credit Agreement, any borrowings must be repaid, we may be prevented from further borrowings and from obtaining or maintaining a letter of credit and/or the Amended Credit Agreement may be terminated by the lenders, which could have a material adverse effect on our liquidity and ability to comply with our obligations. On March 21, 2012, we entered into a credit agreement and on March 31, 2014, May 29, 2014, June 30, 2014, July 30, 2014 and September 15, 2014, we entered into amendments to the credit agreement. The credit agreement, as so amended, is referred to herein as the “Amended Credit Agreement.” The Amended Credit Agreement contains, among other things, covenants, representations and warranties and events of default customary for credit facilities. We are required to maintain compliance with a maximum leverage ratio, a minimum fixed charge coverage ratio, a minimum liquidity amount, and several covenants related to the ED’s regulations. The Amended Credit Agreement also requires us, among other things, to timely deliver our consolidated financial statements to the lenders. In addition, we would be in default under the Amended Credit Agreement, if we default under our obligations associated with:

• our guarantee of the payment of the principal, interest and, prior to February 2013, certain call premiums owed on the senior debt issued by the PEAKS Trust in the aggregate principal amount of $300.0 million (the “PEAKS Senior Debt”) to investors, the administrative fees and expenses of the PEAKS Trust and a minimum required ratio of assets of the PEAKS Trust to outstanding PEAKS Senior Debt (the “PEAKS Guarantee”); or

• the 2009 RSA.

The PEAKS Guarantee and 2009 RSA are collectively referred to herein as the “RSAs.” We would also be in default under the Amended Credit Agreement if, among other things, the ED imposes a delay of more than five days in our receipt of Title IV Program funds. See “—Our institutions’ failure to submit their audited consolidated financial statements and Compliance Audits to the ED by the due date resulted in sanctions imposed by the ED on our institutions that include, among other things, our institutions having to post a letter of credit, being placed on heightened cash monitoring and, being provisionally certified.” Further, the Amended Credit Agreement reduces the amount of secured indebtedness that we are permitted to incur and further limits our ability to dispose of or encumber our assets.

-17-

The Consolidation, restatement of our unaudited condensed consolidated financial statements as of and for each of the fiscal quarters ended March 31, 2013, June 30, 2013 and September 30, 2013, delay in the completion of our 2013 audited consolidated financial statements and first and second quarter 2014 unaudited condensed consolidated financial statements, and other factors, have required us to obtain waivers and amendments of various provisions of the Amended Credit Agreement. Although we have obtained waivers and amendments relating to those violations, we cannot assure you that the financial impact of the Consolidation in future periods, actions taken by the ED affecting us or other factors relating to recent or future events affecting us, will not violate the covenants, or constitute a default by us, under the Amended Credit Agreement. We may not be able to obtain additional amendments to, or waivers of, those covenants or events of default. If we are unable to obtain a waiver of those events of default or an amendment to the Amended Credit Agreement that would allow us to be in compliance with those covenants or otherwise not be in default under the Amended Credit Agreement, the lenders would have various remedies, including:

• the lending commitments under the Amended Credit Agreement may be terminated;

• our ability to request the issuance of letters of credit and to obtain amendments, extensions or renewals of letters of credit already issued under the Amended Credit Agreement may be terminated;

• all then outstanding borrowings and other amounts owed under the Amended Credit Agreement may be declared immediately due and payable; and

• we could be required to provide cash collateral (in an amount equal to 109% of the face amount of a letter of credit issued for the benefit of the ED and 103% of the face amount of all other issued letters of credit) for our obligations with respect to outstanding letters of credit, if that cash collateral has not already been posted.

We may not be able to repay outstanding borrowings or other amounts, or be able to post the required cash collateral. In the event that we, or our subsidiary guarantor, do not pay in full, upon demand, all of our outstanding borrowings and other amounts owed under the Amended Credit Agreement or do not provide, upon demand, the cash collateral for our letter of credit obligations, the lenders would be entitled to recourse against the collateral security that we and our subsidiary guarantor have provided to obtain payment of amounts we owe or are required to provide, as cash collateral. The collateral security consists of:

• substantially all of our and our subsidiary guarantor’s personal property; and

• all of the real property owned by us (other than the real property used by DWC), which consists of 30 separate parcels of land, and all of the improvements thereto and fixtures thereon.

In addition, even if we were able to repay the outstanding borrowings under the Amended Credit Agreement, the use of funds to make that repayment would have a material adverse effect on our cash position and would significantly reduce the amount of funds available to us to satisfy our obligations under the PEAKS Guarantee and the 2009 RSA, which could result in a default by us under those arrangements. Any of these events could have a material adverse effect on our business, ability to meet our obligations, ability to comply with regulatory requirements, financial condition and cash flows.

A default by us under the Amended Credit Agreement could also lead to a determination by:

• the ED that our institutions are not financially responsible;

• the ACs that our institutions are not financially stable; and/or

• one or more of the SAs that our institutions do not satisfy the SAs’ financial requirements.

If the ED, ACs and/or SAs determines that our institutions do not satisfy the applicable financial requirements, these agencies could:

• impose monetary fines or penalties on our campuses;

• terminate or limit our campuses’ operations or ability to award credentials;

• restrict or revoke our campuses’ accreditation;

• limit, terminate or suspend our campuses’ eligibility to participate in Title IV Programs or state financial aid programs;

• require our campuses to repay funds received under Title IV Programs or state financial aid programs;

• require us to post a letter of credit or increase the amounts of existing letters of credit;

• subject our institutions to heightened cash monitoring by the ED;

• transfer our institutions from the ED’s advance system of receiving Title IV Program funds to its reimbursement system, which would significantly delay our institutions’ receipt of Title IV Program funds; and

• subject us or our campuses to other penalties.

Each of these sanctions could adversely affect our financial condition, results of operations and cash flows, and impose significant operating restrictions on us. If any of our campuses lost its state authorization, the campus would be unable to offer postsecondary education and we would be forced to close the campus.

-18-

In addition, the Amended Credit Agreement expires on March 21, 2015. We cannot assure you that we will be able to extend the term of the Amended Credit Agreement or refinance outstanding borrowings, which could have a material adverse effect on our business, ability to meet our obligations, ability to comply with regulatory requirements, financial condition and cash flows.

Risks Related to Our Highly Regulated Industry

Failure of our campuses 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 campuses. To participate in Title IV Programs, an institution must receive and maintain authorization by the appropriate SAs, be accredited by an AC recognized by the ED and be certified as an eligible institution by the ED. As a result, our ITT Technical Institute and DWC campuses are subject to extensive regulation by the ED, SAs and ACs, which cover the vast majority of our operations. The ED, SAs and ACs periodically revise their requirements and modify their interpretations of existing requirements. We cannot predict with certainty how all of the requirements applied by these agencies will be interpreted or implemented or whether all of our campuses will be able to comply with all of the requirements in the future.

If our campuses failed to comply with any of these regulatory requirements, these agencies could:

• impose monetary fines or penalties on our campuses;

• terminate or limit our campuses’ operations or ability to award credentials;

• restrict or revoke our campuses’ accreditation;

• limit, terminate or suspend our campuses’ eligibility to participate in Title IV Programs or state financial aid programs;

• require our campuses to repay funds received under Title IV Programs or state financial aid programs;

• require us to increase the amount of the letter of credit that we are required to submit to the ED;

• subject our institutions to heightened cash monitoring by the ED;

• transfer our institutions from the ED’s advance system of receiving Title IV Program funds to its reimbursement system, which would significantly delay our institutions’ receipt of Title IV Program funds; and

• subject us or our campuses to other civil or criminal penalties.

See “Business – Highly Regulated Industry,” for a discussion of the sanctions imposed on us by our Florida SA as a result of its determination that our 13 campuses in Florida are not financially stable. The sanctions imposed by our Florida SA or any sanctions described above that could be imposed by other agencies could adversely affect our financial condition, results of operations and cash flows and impose significant operating restrictions on us. If any of our campuses lost its state authorization, the campus would be unable to offer postsecondary education and we would be forced to close the campus.

If any of our campuses lost its accreditation, it would lose its eligibility to participate in Title IV Programs and, in some states, its ability to operate. If we could not arrange for alternative financing sources for the students attending a campus that lost its eligibility to participate in Title IV Programs, we could be forced to close that campus. Closing multiple campuses could have a material adverse effect on our financial condition, results of operations and cash flows. See “Business – Highly Regulated Industry.”

The following are some of the specific risk factors related to our highly regulated industry:

Our institutions’ failure to submit their audited consolidated financial statements and Compliance Audits to the ED by the due date resulted in sanctions imposed by the ED on our institutions that include, among other things, our institutions having to post a letter of credit, being placed on heightened cash monitoring and being provisionally certified. Our institutions are subject to extensive regulation by the ED. One of the ED’s regulations applicable to our institutions is that each institution must submit to the ED its audited, consolidated financial statements and a Compliance Audit, in each case with respect to a fiscal year within six months of the following year. Our institutions did not submit their 2013 audited consolidated financial statements and Compliance Audits to the ED by June 30, 2014 and, as a result, the ED determined on August 21, 2014 that our institutions are not financially responsible. Based on this determination, the ED, among other things:

• requires our institutions to submit a letter of credit payable to the ED in the amount of $79.7 million (the “ED Letter of Credit”);

• placed our institutions on heightened cash monitoring by the ED, instead of the ED’s standard advance payment method;

• provisionally certified our institutions to participate in Title IV Programs;

• requires our institutions to provide the ED with information about certain oversight and financial events, as described further below;

• requires us to be able to demonstrate to the ED that, for our two most recent fiscal years, we were current on our debt payments and our institutions have met all of their financial obligations, pursuant to the ED’s standards; and

• could require our institutions, in future years, to submit their audited financial statements and Compliance Audits to the ED earlier than six months following the end of their fiscal year.

-19-

We are required to submit the ED Letter of Credit on or before November 4, 2014. The term of the ED Letter of Credit must be for a period that ends on November 4, 2019. We will be required to adjust the amount of the ED Letter of Credit annually to 10% of the Title IV Program funds received by our institutions in the immediately preceding fiscal year. The ED may terminate our institutions’ eligibility to participate in Title IV Programs, which would have a material adverse effect on our business, financial condition, results of operations and cash flows, if we fail to:

• submit an irrevocable letter of credit payable to the ED in the required amount and for the appropriate term on or before November 4, 2014; or

• annually adjust the amount of the letter of credit to the appropriate amount.

Under heightened cash monitoring (“HCM”), before any of our institutions can request or draw down Title IV Program funds from the ED, the institution must:

• make disbursements to students and parents for the amount of Title IV Program funds that those students and parents are eligible to receive; and

• compile borrower-level records with respect to the disbursement of Title IV Program funds to each student and parent.

Once the HCM requirements are satisfied, our institutions may request or draw down Title IV Program funds from the ED in an amount equal to the actual disbursements made by our institutions. Our institutions will be subject to HCM until at least November 4, 2019. Although we have implemented procedures to address the HCM requirements, and believe that compliance with those requirements will not impact the timing of our institutions’ receipt of Title IV Program funds by more than one business day, we cannot assure you that there will not be future delays in our institutions’ receipt of Title IV Program funds or that our institutions will not request or draw down Title IV Program funds from the ED before the HCM requirements are satisfied. If any of our institutions request or draw down Title IV Program funds from the ED before the HCM requirements are satisfied, the ED could impose additional sanctions on our institutions that could have a material adverse effect on our business, financial condition, results of operations and cash flows, including, among other things:

• monetary fines or penalties;

• limiting, terminating or suspending our institutions’ eligibility to participate in Title IV Programs; and/or

• transferring our institutions from the HCM method of receiving Title IV Program funds to the ED’s reimbursement system, which would significantly delay our institutions’ receipt of Title IV Program funds.

Any significant delay in our institutions’ receipt of Title IV Program funds could adversely affect our financial condition, results of operations and cash flows, and could cause us to be in default of the Amended Credit Agreement. See “—If we default under our Amended Credit Agreement, any borrowings must be repaid, we may be prevented from further borrowings and from obtaining or maintaining a letter of credit and/or the Amended Credit Agreement may be terminated by the lenders, which could have a material adverse effect on our liquidity and ability to comply with our obligations.”

Our institutions will be provisionally certified by the ED to participate in Title IV Programs until at least November 4, 2019. Any institution provisionally certified by the ED must apply for and receive approval by the ED for any substantial change, before the institution can award, disburse or distribute Title IV Program funds based on the substantial change. Substantial changes generally include, but are not limited to:

• the establishment of an additional location;

• an increase in the level of academic offering beyond those listed in the institution’s Eligibility and Certification Approval Report with the ED;

• an addition of any eligible non-degree education program or short-term training program; or

• an addition of a degree program by a proprietary institution.

If an institution applies for the ED’s approval of a substantial change, the institution must demonstrate that it has the financial and administrative resources necessary to assure the institution’s continued compliance with the ED’s standards of financial responsibility and administrative capability. If we are unable to obtain the required approvals from the ED for any new campuses or learning sites, or any new program offerings, or to obtain those approvals in a timely manner, our ability to operate the new campuses, add the learning sites or offer new programs as planned would be impaired, which could have a material adverse effect on our expansion plans. See “—We cannot operate new campuses, add learning sites or offer new programs, if they are not timely authorized 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 authorization.”

We are required to provide information to the ED about any of the following events within 10 days of its occurrence:

• any adverse action, including probation or similar action, taken against any of our institutions by its AC, any of its SAs or any federal agency;

• any event that causes us to realize any liability that was noted as a contingent liability in our most recent audited financial statements;

• any violation by us of any loan agreement;

-20-

• any failure by us to make a payment in accordance with our debt obligations that results in a creditor filing suit to recover funds under those obligations;

• any withdrawal of our shareholders’ equity or net assets by any means, including the declaration of a dividend;

• any extraordinary loss by us, as defined under Accounting Principles Board Opinion No. 30; or

• any filing of a petition by us for relief in bankruptcy court.

Our notice to the ED of the occurrence of any of the above events, must include the details of the circumstances surrounding the event and, if applicable, the steps we have taken, or plan to take, to resolve the issue.

The sanctions imposed on us by the ED described above could have a material adverse effect on our financial condition, results of operations, cash flows and ability to meet our contractual and regulatory obligations. Further, we cannot assure you that we will be able to submit the ED Letter of Credit in the amount and for the term required by the ED, that we will be able to provide the cash collateral required to maintain the ED Letter of Credit or that we will be able to obtain any required annual increases in the amount of the ED Letter of Credit. Our provision of the cash required under the Amended Credit Agreement to collateralize the ED Letter of Credit will have a material adverse effect on our liquidity, and will significantly reduce the amount of cash that we will have available for other purposes, including to satisfy our future payment obligations under the RSAs. The fact that a significant amount of our cash will be held in connection with the ED Letter of Credit could also negatively affect our ability to satisfy the financial metrics of the ED, SAs and ACs to which we are subject.

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. Political and budgetary concerns significantly affect Title IV Programs. The U.S. Congress enacted the HEA to be reauthorized on a periodic basis, which most recently occurred in 2008. If our efforts to comply with the provisions of the HEA are inconsistent with how the ED interprets the HEA or implements its regulations under the HEA, or with other regulations, we may be found to be in noncompliance with those provisions and the ED could impose monetary penalties, place limitations on our operations and/or condition or terminate our eligibility to participate in Title IV Programs.

In addition, the U.S. Congress can change the laws affecting Title IV Programs in the annual federal appropriations bills and other laws it enacts between the HEA reauthorizations. We cannot predict all of the changes that the U.S. Congress will ultimately make. Since a significant percentage of our revenue is indirectly derived from Title IV Programs, any action by the U.S. Congress that significantly reduces Title IV Program funding or the ability of our campuses or students to participate in Title IV Programs could have a material adverse effect on our financial condition, results of operations and cash flows.

If one or more of our ITT Technical Institute or DWC campuses lost its eligibility to participate in Title IV Programs, or if the U.S. Congress significantly reduced the amount of available Title IV Program funding, we would try to arrange or provide alternative sources of financial aid for the students at the affected campuses. It is unlikely that private organizations would be willing to provide loans to students attending those campuses or that the interest rate and other terms of those loans would be as favorable as for Title IV Program loans. In addition, the private organizations could provide a discounted disbursement amount to us on the student loans and/or require us to guarantee all or part of this assistance on unfavorable terms, and we might incur other additional costs. If we provided more direct financial assistance to our students, we would incur additional costs and assume increased credit risks.

Legislative action may also increase our administrative costs and burden and require us to modify our practices in order for our campuses to comply fully with the legislative requirements, which could have a material adverse effect on our financial condition, results of operations and cash flows.

One or more of our institutions may lose its eligibility to participate in Title IV Programs, if its federal student loan cohort default rates are too high. Under the HEA, an institution may lose its eligibility to participate in some or all Title IV Programs, if the rates at which the institution’s students default on their federal student loans exceed specified percentages. The ED calculates these rates for each institution on an annual basis, based on the number of students who have defaulted, not the dollar amount of such defaults. Each institution that participated in the FFEL program and/or FDL program receives a FFEL/FDL cohort default rate for each federal fiscal year (“FFY”) based on defaulted FFEL and FDL program loans. A FFY is October 1 through September 30. The ED calculates an institution’s annual cohort default rate as the rate at which borrowers scheduled to begin repayment on their loans in one FFY default on those loans by the end of the second succeeding FFY (“Three-Year CDR”).

The ED began calculating a Three-Year CDR for each institution for FFY 2009. If an institution’s Three-Year CDR is:

• 30% or greater for three consecutive FFYs, the institution loses eligibility to participate in the FDL program and the Pell program for the remainder of the FFY in which the ED determines that the institution has lost its eligibility and for the two subsequent FFYs; or

• greater than 40% for one FFY, the institution loses eligibility to participate in the FDL programs for the remainder of the FFY in which the ED determines that the institution has lost its eligibility and for the two subsequent FFYs.

-21-

None of our institutions had a Three-Year CDR of 30% or greater for the FFYs 2010 or 2011, which are the most recent FFYs for which official Three-Year CDRs have been issued by the ED. The following table sets forth the average of our institutions’ Three-Year CDRs for the FFYs indicated:

FFY	Three-Year CDR Average
2011		22.4	%
2010		28.5	%
2009		32.9	%(a)

(a) Reduced by the ED from 34.2% as a result of an uncorrected data adjustment.

We believe that the higher Three-Year CDR average for FFYs 2010 and 2009 compared to the Three-Year CDR average for FFY 2011 was primarily due to the servicing on the FFEL program loans that were purchased by the ED from the lenders (the “Purchased Loans”) during 2009 and 2010. The Purchased Loans were initially serviced by the FFEL program lenders that made those loans, until the Purchased Loans were sold to the ED. Upon receipt of the Purchased Loans, the ED transferred the servicing of those loans to the servicer of the FDL program loans. Shortly thereafter, the ED replaced the servicer of the FDL program loans with four different servicers, and servicing of the Purchased Loans was distributed among the new servicers of the FDL program loans. We believe that the changes in the servicers of the Purchased Loans had a negative impact on the servicing of those loans, which could have resulted in a higher Three-Year CDR average with respect to those loans. We appealed the ITT Technical Institute institutions’ official Three-Year CDRs for FFY 2009 on the basis that those Purchased Loans were improperly serviced. We have not yet received the ED’s final determination of the ITT Technical Institute institutions’ Three-Year CDRs for FFY 2009 in response to our loan servicing appeal. We anticipate that the result of this appeal will not significantly change the average Three-Year CDR for FFY 2009 shown above. We did not appeal the ITT Technical Institute institutions’ official Three-Year CDRs for FFYs 2010 or 2011.

The ED may place an institution on provisional certification status, if the institution’s official Three-Year CDR is 30% or greater for at least two of the three most recent FFYs. The ED may more closely review an institution that is provisionally certified, if it applies for approval to open a new location or offer a new program of study that requires approval, or makes some other significant change affecting its eligibility. Provisional certification does not otherwise limit an institution’s participation in Title IV Programs.

An institution can appeal its loss of eligibility due to high Three-Year CDRs. During the pendency of any such appeal, the institution remains eligible to participate in the FDL and Pell programs. If an institution continues its participation in the FDL programs during the pendency of any such appeal and the appeal is unsuccessful, the institution must pay the ED the amount of interest, special allowance, reinsurance and any related payments paid by the ED (or which the ED is obligated to pay) with respect to the FDL program loans made to the institution’s students or their parents that would not have been made if the institution had not continued its participation (the “Direct Costs”). If a substantial number of our campuses were subject to losing their eligibility to participate in the FDL and Pell programs because of our institutions’ Three-Year CDRs, the potential amount of the Direct Costs for which we would be liable if our appeals were unsuccessful would prevent us from continuing some or all of the affected campuses’ participation in the FDL program during the pendency of those appeals, which would have a material adverse effect on our financial condition, results of operations and cash flows.

Current and future economic conditions in the United States could also adversely affect our institutions’ Three-Year CDRs. Increases in interest rates, declines in individuals’ incomes and job losses for our students and graduates or their parents have contributed to, and could continue to contribute to, higher default rates on student loans.

The servicing and collection efforts of student loan servicers help to lower our institutions’ Three-Year CDRs. We supplement their efforts by attempting to contact students to advise them of their responsibilities and any deferment, forbearance or alternative repayment plans for which they may qualify.

If any of our institutions lost its eligibility to participate in FDL and Pell programs and we could not arrange for alternative financing sources for the students attending the campuses in that institution, we would probably have to close those campuses, which would have a material adverse effect on our financial condition, results of operations and cash flows.

If the ED’s proposed new gainful employment regulations are promulgated by the ED in a manner that withstands challenge, and if any of our programs of study fail to qualify as programs that lead to gainful employment in a recognized occupation under those regulations, students attending those programs of study will be unable to use funds from Title IV Programs to help pay their education costs. On June 13, 2011, the ED issued final regulations that were to become effective on July 1, 2012, specifying requirements related to a program of study that leads to gainful employment in a recognized occupation (the “2011 GE Rule”). On June 30, 2012, the U.S. District Court for the District of Columbia vacated all of the 2011 GE Rule, except for those portions pertaining to certain institutional disclosures and reporting requirements. On March 25, 2014, the ED published proposed new gainful employment regulations (“New GE Rule”). If the ED publishes a final version of the New GE Rule on or before November 1, 2014, it would take effect on July 1, 2015.

-22-

The proposed New GE Rule includes some metrics that are similar to those originally set forth in the 2011 GE Rule, as well as additional provisions and other metrics, some of which are more restrictive than the terms of the 2011 GE Rule, including:

• Two debt-to-earnings rates (the “D/E Rates”), consisting of a debt-to-discretionary earnings (“dDTE”) rate and a debt-to-earnings (“aDTE”) rate.

• The dDTE rate is the percentage that (i) the annual loan payment required on the median student loan debt incurred by students receiving funds from the Title IV Programs who completed the program represents of (ii) the higher of the mean or median of those students’ discretionary earnings approximately two to three years after they graduate.

• The aDTE rate is the percentage that (i) the annual loan payment required on the median student loan debt incurred by students receiving funds from the Title IV Programs who completed the program represents of (ii) the higher of the mean or median of those students’ actual annual earnings approximately two to three years after they graduate.

• A program must achieve an aDTE rate at or below 8%, or a dDTE rate at or below 20%, to be considered “passing.” A program with an aDTE rate greater than 8%, but less than or equal to 12%, or a dDTE rate greater than 20%, but less than or equal to 30%, is considered “in the zone.” A program with an aDTE rate greater than 12%, or a dDTE rate greater than 30%, is considered “failing.”

• A program will cease to be eligible for students to use Title IV Program funds, if its aDTE rate and dDTE rate are failing in two out of any three consecutive award years or not passing in one out of any four consecutive award years. An award year under the Title IV Programs begins on July 1^st and ends on June 30^th of the immediately succeeding calendar year.

• A program level Three-Year CDR (“pCDR”) that would be calculated in the same manner as an institution’s Three-Year CDR, but based solely on the performance of former students in the particular program.

• A program will cease to be eligible for students to use Title IV Program funds, if its pCDR is higher than 30% for three consecutive FFYs.

If a program could become ineligible for students to use Title IV Program funds based on its D/E Rates for the next award year or pCDR for the next FFY, the institution must:

• provide a written warning to current and prospective students in that program which, among other things, states that students may not be able to use Title IV Program funds to attend the program; and

• not enroll, register or enter into a financial commitment with a prospective student in the program, until three business days after (a) the written warning is provided to the prospective student, or (b) a second written warning is provided to the prospective student, if more than 30 days have passed since the written warning was first provided to the prospective student.

The proposed New GE Rule also requires institutions to make additional public disclosures and report additional information to the ED with respect to each program that leads to gainful employment in a recognized occupation. The additional disclosure and reporting requirements would be administratively burdensome, would increase our compliance costs, and could cause fewer students to enroll in our programs of study.

If a program becomes ineligible for students to use Title IV Program funds, the institution cannot seek to reestablish the eligibility of that program, or establish the eligibility of a program with a classification of instructional program (“CIP”) code that has the same first four digits as the CIP code of an ineligible program, until three years following the date on which the program became ineligible.

We cannot be sure of the outcome of this rulemaking, nor can we predict with any certainty which or how many of our programs of study would be ineligible or subject to student warnings under a New GE Rule. We are evaluating the potential impact of the proposed New GE Rule, which may be significantly different in its final version. We cannot predict with certainty the form or impact of a New GE Rule on our operations. Compliance with a New GE Rule could reduce our enrollments, increase our cost of doing business, and have a material adverse effect on our business, financial condition, results of operations and cash flows.

        In response to the vacated 2011 GE Rule, we made significant changes to the programs of study that we offer. The vacated 2011 GE Rule also put downward pressure on tuition prices, to help prevent students from incurring debt that exceeded the levels required for a program to remain eligible under Title IV Programs. This, in turn, increased the percentage of our revenue that is derived from Title IV Programs and, therefore, could adversely impact our compliance with other ED regulations. We have also limited enrollment in certain programs of study and substantially increased our efforts to promote student loan repayment. A New GE Rule would likely result in the continuation of any or all of these factors. Any or all of these factors could reduce our enrollment and/or increase our cost of doing business, perhaps materially, which could have a material adverse effect on our business, prospects, financial condition, results of operations, cash flows and stock price.

-23-

We may be subject to sanctions, including, without limitation, an increase the amount of the ED Letter of Credit, and other limitations in order to continue our campuses’ participation in Title IV Programs, state authorization and accreditation, if we or our campuses do not meet the financial standards of the ED, SAs or ACs. The ED, SAs and ACs prescribe specific financial standards that an institution must satisfy to participate in Title IV Programs, operate in a state and be accredited. The ED evaluates institutions for compliance with its standards each year, based on the institution’s annual audited financial statements, as well as following any change of control of the institution and when the institution is reviewed for recertification by the ED. In evaluating an institution’s compliance with the financial responsibility standards, the ED may examine the financial statements of the individual institution, the institution’s parent company or any party related to the institution. Historically, the ED has evaluated the financial condition of our institutions on a consolidated basis, based on our financial statements at the parent company level. The most significant financial responsibility measurement is the institution’s composite score, which is calculated by the ED based on three ratios:

• the equity ratio, which measures the institution’s capital resources, ability to borrow and financial viability;

• the primary reserve ratio, which measures the institution’s ability to support current operations from expendable resources; and

• the net income ratio, which measures the institution’s ability to operate at a profit.

The ED assigns a strength factor to the results of each of these ratios on a scale from negative 1.0 to positive 3.0, with negative 1.0 reflecting financial weakness and positive 3.0 reflecting financial strength. The ED then assigns a weighting percentage to each ratio and adds the weighted scores for the three ratios together to produce a composite score for the institution (the “Composite Score”). The Composite Score must be at least 1.5 for the institution to be deemed financially responsible by the ED without the need for further oversight. Our institutions’ Composite Score, based on our fiscal year consolidated financial statements at the parent company level, was 1.8 in 2012. In calculating our institutions’ 2013 Composite Score, there are two exclusions that might be available under the ED’s regulations, which would cause our 2013 Composite Score to be higher than if the exclusions were not permitted. The potential exclusions are:

• the unusual, one-time charge related to the Consolidation; and

• the effect of a change in accounting estimate related to the 2009 RSA.

See Note 10 – Variable Interest Entities and Note 16 – Commitments and Contingencies of the Notes to Consolidated Financial Statements, for a more detailed discussion of these factors. The ED may not agree with either or both of these exclusions. If the ED determines that:

• both the unusual, one-time charge and the effect of a change in accounting estimate cannot be excluded from the calculation of our institutions’ 2013 Composite Score, our institutions’ 2013 Composite Score would be 0.9, which could require us to post a letter of credit, or increase the amount of any existing letter of credit, payable to the ED, as discussed below;

• the unusual, one-time charge can be excluded, but the effect of a change in accounting estimate cannot be excluded, from the calculation of the our institutions’ 2013 Composite Score, our institutions’ 2013 Composite Score would be 1.6;

• the effect of a change in accounting estimate can be excluded, but the unusual, one-time charge cannot be excluded, from the calculation of the our institutions’ 2013 Composite Score, our institutions’ 2013 Composite Score would be 1.8; or

• both the unusual, one-time charge and the effect of a change in accounting estimate can be excluded from the calculation of our institutions’ 2013 Composite Score, our institutions’ 2013 Composite Score would be 1.9.

If the ED determines that an institution does not satisfy the ED’s financial responsibility standards (including, without limitation, having a Composite Score that is less than 1.5), the institution may establish its financial responsibility on one of several alternative bases, including:

• a letter of credit alternative, pursuant to which the institution must submit a letter of credit payable to the ED in an amount equal to at least 50% of the Title IV Program funds received by the institution during its most recently completed fiscal year;

• a provisional certification alternative for no more than three consecutive years, pursuant to which the institution:

• must submit a letter of credit payable to the ED in an amount equal to at least 10% of the Title IV Program funds received by the institution during its most recently completed fiscal year;

• must demonstrate to the ED that, for its two most recent fiscal years, the institution was current on its debt payments and has met all of its financial obligations to the ED;

• would be placed on HCM or the reimbursement system of payment by the ED, instead of the ED’s standard advance payment method;

• would be subject to certain additional reporting requirements; and

• could be required to submit its audited financial statements and Compliance Audit to the ED earlier than six months following the end of its fiscal year; or

• a zone alternative, if the institution is not financially responsible solely because its Composite Score is in the range of 1.0 to 1.4 for no more than three consecutive years, pursuant to which the institution:

• would be placed on HCM or the reimbursement system of payment by the ED, instead of the ED’s standard advance payment method;

• would be subject to certain additional reporting requirements; and

• could be required to submit its audited financial statements and Compliance Audit to the ED earlier than six months following the end of its fiscal year.

-24-

The letter of credit that the ED has already required us to post might be accepted to satisfy any additional letter of credit requirement, but there can be no assurance that the ED would not require us to increase the amount of any then-existing letter of credit based on our institutions’ 2013 Composite Scores. Any of the alternatives to establishing financial responsibility described above could have a material adverse effect on our financial condition, results of operations and cash flows. Any significant delay in our institutions’ receipt of Title IV Program funds could adversely affect our financial condition, results of operations and cash flows, and could cause us to be in default of the Amended Credit Agreement. See “—If we default under our Amended Credit Agreement, any borrowings must be repaid, we may be prevented from further borrowings and from obtaining or maintaining a letter of credit and/or the Amended Credit Agreement may be terminated by the lenders, which could have a material adverse effect on our liquidity and ability to comply with our obligations.” Further, in the event that the ED requires our institutions to submit a letter of credit payable to the ED in an amount equal to at least 10% or 50% of the Title IV Program funds received by our institutions during its most recently completed fiscal year, we cannot assure you that our institutions would be able to submit a letter of credit payable to the ED in the amount required by the ED, or that we would be able to provide the cash collateral necessary to maintain any letter of credit.

The SA’s financial standards include a variety of financial metrics and ratios, including, without limitation, positive net working capital, positive net worth, operating profit, one-to-one ratio of assets to liabilities and/or one-to-one ratio of current assets to current liabilities. Our institutions violated the financial standards of the SAs in Florida, Pennsylvania, Tennessee and West Virginia, due to:

• the Consolidation;

• our institutions’ failure to submit their 2013 audited consolidated financial statements to the SAs by the applicable due dates; and/or

• other factors.

As a result of these violations our:

• Florida SA:

• changed the authorization to operate for each of our 13 campuses in Florida from an annual license to a provisional license, through June 31, 2015;

• will conduct an on-site visit of each of our Florida campuses to determine the campus’ compliance with our Florida SA’s regulations;

• will require each of our Florida campuses to correct any deficiencies noted during our Florida SA’s on-site visit of the campus;

• required us to submit to our Florida SA any correspondence that we or any of our institutions have with the ED or the AC of our Florida campuses, within 15 days of the submission or receipt of that correspondence;

• required each of our Florida campuses to submit a train-out plan to our Florida SA on or before September 4, 2014; and

• required us to report to our Florida SA, at its September 2014 meeting, on the stability of our Florida campuses and any changes that may further affect our stability or operations;

• Pennsylvania SA could:

• place each of our seven campuses in Pennsylvania on quarterly financial reporting;

• require each of our Pennsylvania campuses to submit to our Pennsylvania SA a teach-out plan with respect to all of the campus’ programs;

• require each of our Pennsylvania campuses to submit to our Pennsylvania SA a business plan with respect to the campus’ operations;

• raise the required amount of the surety bond that each of our Pennsylvania campuses are required to post for the benefit of our Pennsylvania SA; and/or

• suspend or revoke each of our Pennsylvania campuses’ authorization to operate as an educational institution in Pennsylvania;

• Tennessee SA could:

• assess monetary fines against each of our five campuses in Tennessee;

• require each of our Tennessee campuses to submit to our Tennessee SA an audit of the campus’ financial stability that is conducted in accordance with generally accepted auditing standards in the United States;

• revoke or change each of our Tennessee campuses’ authorization to operate as an educational institution in Tennessee; and/or

• suspend or terminate all or any portion of our Tennessee campuses’ operations in Tennessee, including, without limitation, new student enrollment, advertising and/or teaching specific programs; and

• West Virginia SA could:

• raise the amount of the surety bond that our one campus in West Virginia needs is required to post for the benefit of our West Virginia SA;

• call the surety bond that our West Virginia campus posted for the benefit of our West Virginia SA;

• suspend, withdraw or revoke our West Virginia campus’ authorization to operate or solicit students in West Virginia;

• change our West Virginia campus’ authorization to operate in West Virginia to a probationary authorization;

• require our West Virginia campus to refund its students’ tuition and fees; and/or

• take any other action against our West Virginia campus that our West Virginia SA deems appropriate.

-25-

If some or all of the sanctions described above were imposed on many of the affected campuses, those sanctions would have a material adverse effect on our financial condition, results of operations and cash flows.

One or more of our institutions 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. The HEA and its implementing regulations impose limits on the amount of Title IV Program funds withdrawing students can use to pay their education costs (the “Return Policy”). The Return Policy permits a student to use only a pro rata portion of the Title IV Program funds that the student would otherwise be eligible to use, if the student withdraws during the first 60% of any period of enrollment. For the vast majority of our campuses, a period of enrollment is generally an academic quarter. The institution must calculate and return to the ED any Title IV Program funds that the institution receives on behalf of a withdrawing student in excess of the amount the student can use for such period of enrollment. The institution must return those unearned funds in a timely manner which is generally within 45 days of the date the institution determined that the student had withdrawn. If the unearned funds are not properly calculated and timely returned, we may have to post a letter of credit in favor of the ED or be otherwise sanctioned by the ED. An institution is required to post a letter of credit with the ED in an amount equal to 25% of the total dollar amount of unearned Title IV Program funds that the institution was required to return with respect to withdrawn students during its most recently completed fiscal year, if the institution is found in an audit or program review to have untimely returned unearned Title IV Program funds with respect to 5% or more of the students in the audit or program review sample of withdrawn students, in either of its two most recently completed fiscal years. As of December 31, 2013, no audit or review had found that any of our institutions violated the ED’s standard on the timely return of unearned Title IV Program funds. The requirement to post a letter of credit or other sanctions by the ED could increase our cost of regulatory compliance and adversely affect our results of operations. Further, we cannot assure you that our institutions would be able to submit a letter of credit payable to the ED in the amount required by the ED, or that we would be able to provide the cash collateral required to maintain any letter of credit.

The standards of most of the SAs and the ACs limit a student’s obligation to an institution for tuition and fees, if a student withdraws from the institution (the “Refund Policies”). The specific standards vary among the SAs. Depending on when, during an academic term, a student withdraws and the applicable Refund Policies, in many instances the student remains obligated to the campus for some or all of the student’s education costs that were paid by the Title IV Program funds returned under the Return Policy. In these instances, many withdrawing students are unable to pay all of their education costs, unless the students have access to other sources of financial aid. Our experience has been that many of our affected students do not have access to other sources of financial aid and that we have been unable to collect a significant portion of many withdrawing students’ education costs that would have been paid by Title IV Program funds that were returned, which, in the aggregate, have had and may continue to have a material adverse effect on our results of operations and cash flows.

One or more of our institutions may lose its eligibility to participate in Title IV Programs, if the percentage of its revenue derived from those programs is too high. Under a provision of the HEA commonly referred to as the 90/10 Rule, a proprietary institution may be sanctioned if, on a cash accounting basis, the institution derives more than 90% of its applicable revenue in a fiscal year from Title IV Programs. If an institution exceeds the 90% threshold for any single fiscal year, the ED would place that institution on provisional certification status for the institution’s following two fiscal years, unless the institution’s participation in Title IV Programs ends sooner. In addition, if an institution exceeds the 90% threshold for two consecutive fiscal years, it would be ineligible to participate in Title IV Programs as of the first day of the following fiscal year and would be unable to apply to regain its eligibility until the end of the second subsequent fiscal year. Furthermore, if one of our institutions exceeded the 90% threshold for two consecutive fiscal years and became ineligible to participate in Title IV Programs but continued to disburse Title IV Program funds, the ED would require the institution to repay, with limited exceptions, all Title IV Program funds disbursed by the institution after the effective date of the loss of eligibility.

For our 2013 fiscal year, none of our institutions derived more than approximately 83% of its applicable revenue on a cash accounting basis from Title IV Programs under the 90/10 Rule calculation. Any changes in federal law that increase Title IV Program grant or loan limits, or that count funds other than Title IV Program funds toward the 90% limit, may result in an increase in the percentage of revenue that we indirectly derive from Title IV Programs, which could make it more difficult for us to satisfy the 90/10 Rule.

We regularly monitor compliance with the 90/10 Rule to minimize the risk that any of our institutions would derive more than the maximum allowable percentage of its applicable revenue from Title IV Programs for any fiscal year. If an institution appeared likely to approach the maximum percentage threshold, we would consider making changes in student financing to comply with the 90/10 Rule, but we cannot assure you that we would be able to do this in a timely manner or at all. Further, one of the components of the 90/10 Rule calculation requires us to deduct, from the amount of applicable revenue that we can apply toward the 10% portion of the rule, the principal portion of the payments that we make under the 2009 RSA, in the fiscal year in which those payments are made. This component of the 90/10 Rule calculation increases the uncertainty of whether any of our

-26-

institutions will derive more than 90% of its applicable revenue from Title IV Programs in future fiscal years. If any of our institutions lost its eligibility to participate in Title IV Programs and we could not arrange for alternative financing sources for the students attending the campuses in that institution, we would probably have to close those campuses, which could have a material adverse effect on our financial condition, results of operations and cash flows.

Failure by one or more of our institutions to satisfy the ED’s administrative capability requirements could result in financial penalties, limitations on the institution’s participation in Title IV Programs, or loss of the institution’s eligibility to participate in Title IV Programs. To participate in Title IV Programs, an institution must satisfy criteria of administrative capability prescribed by the ED. These criteria include requirements that the institution:

• demonstrate a reasonable relationship between the length of its programs and the entry-level job requirements of the relevant fields of employment;

• comply with all of the applicable Title IV Program regulations prescribed by the ED;

• have capable and sufficient personnel to administer the institution’s participation in Title IV Programs;

• define and measure the satisfactory academic progress of its students within parameters specified by the ED;

• provide adequate financial aid counseling to its students who receive Title IV Program funds; and

• timely submit all required reports and financial statements to the ED.

If the ED determines that an institution is not capable of adequately administering its participation in any of the Title IV Programs, the ED could:

• impose monetary fines or penalties on the institution;

• require the institution to repay funds received under Title IV Programs;

• transfer the institution from the advance method of payment of Title IV Program funds to HCM or the reimbursement system of payment; or

• limit or terminate the institution’s eligibility to participate in Title IV Programs.

Each of these sanctions could adversely affect our financial condition, results of operations and cash flows and impose significant operating restrictions on us. In addition, for 2014 and subsequent years, an institution is deemed by the ED to lack administrative capability if its Three-Year CDR equals or exceeds 30% for at least two of the three most recent federal fiscal years for which such rates have been published. If an institution’s administrative capability is impaired solely because its Three-Year CDRs equal or exceed the applicable percentage, the institution can continue to participate in Title IV Programs, but the ED may place the institution on provisional certification.

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. The ED’s regulations prohibit an institution participating in Title IV Programs from providing any commission, bonus or other incentive payment based directly or indirectly on success in securing enrollments or financial aid to any person or entity engaged in any student recruitment or admission activity or in making decisions regarding the awarding of Title IV Program funds (the “Incentive Compensation Prohibition”). We believe that the Incentive Compensation Prohibition:

• does not establish clear criteria for compliance in all circumstances, and the ED will not entertain a request by an institution for the ED to review and assess its individual compensation plan;

• may subject us to qui tam lawsuits for alleged violations of the False Claims Act, 31 U.S.C. § 3729 et seq. (“False Claims Act”);

• adversely affects our ability to compensate our employees based on their performance of their job responsibilities, which makes it more difficult to attract and retain highly-qualified employees; and

• impairs our ability to sustain and grow our business.

We cannot be sure that the compensation that we have paid our employees will not be determined to violate the Incentive Compensation Prohibition. If the ED determines that our compensation practices violate the Incentive Compensation Prohibition, the ED could subject us to substantial monetary fines or penalties or other sanctions. We could also be subjected to qui tam lawsuits for alleged violations of the False Claims Act related to the Incentive Compensation Prohibition. Those sanctions and lawsuits could have a material adverse effect on our financial condition, results of operations, cash flows and future growth.

We cannot operate new campuses, add learning sites or offer new programs, if they are not timely authorized 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 authorization. Our expansion plans assume that we will be able to continue to obtain the necessary authorization from the ED, ACs and SAs to establish new campuses, add learning sites to our existing campuses and expand or revise program offerings in a timely manner. If we are unable to obtain the required authorizations from the ED, ACs or SAs for any new campuses or learning sites, or any new or revised program offerings, or to obtain such authorizations in a timely manner, our ability to operate the new campuses, add the learning sites or offer new or revised programs as planned would be impaired, which could have a material adverse effect on our expansion plans.

-27-

The process of obtaining any required SA and ACs authorizations can also delay our operating new campuses, adding learning sites or offering new programs. The status of our institutions and the state laws and regulations in effect in the states where we are located or anticipate establishing a new location or the ACs standards may limit our ability to establish new campuses and learning sites and expand the programs offered at a campus, which could have a material adverse effect on our expansion plans.

In addition, an institution that is eligible to participate in Title IV Programs may add a new location or education program without the ED’s approval only if certain requirements are met. Otherwise, the institution must obtain the ED’s approval before it may disburse Title IV Program funds to students in the new location or education program. If we were to erroneously determine that a new location or education program is eligible for Title IV Program funding, we would likely be liable for repayment of the Title IV Program funds provided to students in that location or program. See “Business – Highly Regulated Industry.”

Due to our institutions’ failure to submit their 2013 audited consolidated financial statements and Compliance Audits to the ED by June 30, 2014, all of our institutions are provisionally certified to participate in the Title IV Programs. See “—Our institutions’ failure to submit their audited consolidated financial statements and Compliance Audits to the ED by the due date resulted in sanctions imposed by the ED on our institutions that include, among other things, our institutions having to post a letter of credit, being placed on heightened cash monitoring and being provisionally certified.” Any institution provisionally certified by the ED must apply for and receive approval by the ED for any substantial change before the institution can award, disburse or distribute Title IV Program funds based on the substantial change. Substantial changes generally include, but are not limited to:

• the establishment of an additional location;

• an increase in the level of academic offering beyond those listed in the institution’s Eligibility and Certification Approval Report with the ED;

• an addition of any eligible non-degree education program or short-term training program; or

• an addition of a degree program by a proprietary institution.

See “Business – Highly Regulated Industry,” for a further discussion of the ED’s provisional certification of an institution to participate in Title IV Programs. See also “—If the ED’s proposed new gainful employment regulations are promulgated by the ED in a manner that withstands challenge, and if any of our programs of study fail to qualify as programs that lead to gainful employment in a recognized occupation under those regulations, students attending those programs of study will be unable to use funds from Title IV Programs to help pay their education costs,” regarding additional program approval requirements that are contained in the draft regulations under the New GE Rule.

Failure by any of our campuses or program offerings to satisfy the ACICS compliance standards with respect to Student Retention Rates, Graduate Placement Rates or Licensure Examination Pass Rates could cause us to close those campuses and reduce the offerings of those programs. Under the ACICS standards, if the Student Retention Rate or Graduate Placement Rate:

• of a campus falls below the ACICS benchmark standards, the campus is required to develop and implement a campus improvement plan and periodically report its results to the ACICS;

• of a campus falls below the ACICS compliance standards, the campus is required to come into compliance within a specified time period, or the ACICS may withdraw the campus’ inclusion in the institution’s grant of accreditation;

• of a program offering at a campus falls below the ACICS benchmark standards, the campus is required to develop and implement a program improvement plan for that program offering; or

• of a program offering at a campus falls below the ACICS compliance standards, the program offering is required to come into compliance within a specified time period, or the ACICS may withdraw its authorization of that program offering.

The ACICS has also implemented standards related to Licensure Examination Pass Rates that apply to programs of study that have graduates who, if they seek employment, are required to have a certificate, licensure or registration based on an industry-sponsored examination in the applicable field. Under the ACICS standards, if the Licensure Examination Pass Rate:

• of a program offering at a campus falls below the ACICS benchmark standards, the campus is required to develop and implement a program improvement plan for that program offering; or

• of a program offering at a campus falls below the ACICS compliance standards, the program offering is required to come into compliance within a specified time period, or the ACICS may withdraw its authorization of that program offering.

A campus that falls below the ACICS:

• benchmark standards is not required to obtain permission from the ACICS prior to applying to add a new program offering; or

• compliance standards is required to obtain permission from the ACICS prior to applying to add a new program offering.

One ITT Technical Institute location needs to raise its Student Retention Rate to at least 60% by November 1, 2015, or the ACICS may withdraw that location’s inclusion in the institution’s grant of accreditation. Five ITT Technical Institute locations

-28-

need to raise their Graduate Placement Rates to at least 60% by November 1, 2015, or the ACICS may withdraw those locations’ inclusion in the institution’s grant of accreditation. A total of 87 program offerings at 61 ITT Technical Institute locations need to raise their Student Retention Rates to at least 60% by November 1, 2015, or the ACICS may withdraw its authorization of those program offerings (although we have discontinued and are no longer enrolling new students in 18 of those program offerings). A total of 158 program offerings at 86 ITT Technical Institute locations need to raise their Graduate Placement Rates to at least 60% by November 1, 2015, or the ACICS may withdraw its authorization of those program offerings (although we have discontinued and are no longer enrolling new students in 141 of those program offerings). A total of four program offerings at four ITT Technical Institute locations need to raise their Licensure Examination Pass Rates to at least 60% by November 1, 2015, or the ACICS may withdraw its authorization of those program offerings.

If the ACICS determines that its Mitigating Circumstances apply to an institution’s campus or program, the ACICS waives the application of the compliance standard to the institution’s campus or program. The ACICS has granted Mitigating Circumstances waivers to a total of:

• one ITT Technical Institute location with respect to the Student Retention Rate compliance standard;

• nine ITT Technical Institute locations with respect to the Graduate Placement Rate compliance standard;

• six program offerings at six ITT Technical Institute locations with respect to the Student Retention Rate compliance standard; and

• four program offerings at three ITT Technical Institute locations with respect to the Graduate Placement Rate compliance standard.

The number of ITT Technical Institute locations and program offerings that received Mitigating Circumstances waivers from the ACICS are not included in the number of ITT Technical Institute locations and program offerings specified in the immediately preceding paragraph that are subject to having the locations’ inclusion in the institution’s grant of accreditation withdrawn or the program offerings’ authorizations withdrawn for failure to comply with the Student Retention Rate and Graduate Placement Rate compliance standards.

If any of our ITT Technical Institute locations and/or program offerings fall below the Student Retention Rate, Graduate Placement Rate or Licensure Examination Pass Rate compliance standards and we were unable to timely bring those locations and/or program offerings into compliance, we may have to close those locations and reduce the offerings of those programs, which could have a material adverse effect on our expansion plans, financial condition, results of operations and cash flows.

The failure of our programs of study offered in any state to qualify as credit hour programs, as opposed to clock hour programs, under the ED’s regulations would likely result in our students, who attend those programs, receiving less funds from Title IV Programs, may result in fewer students attending those programs and could result in financial penalties. The ED’s regulations related to determining when a program of study is required to measure student progress in clock hours, as opposed to credit hours, are unclear. Students attending credit hour programs of study that are required to be measured in clock hours will likely receive less funds from Title IV Programs to pay their cost of education with respect to those programs of study. Students interested in those programs of study may have to use more expensive private financing to pay their cost of education or may be unable to enroll in those programs of study. Students may determine that they do not qualify for private financing or that the private financing costs make borrowing too expensive, which may cause students to abandon or delay their education. Any or all of these factors could reduce our enrollment, which could have a material adverse effect on our business, financial condition, results of operations, cash flows and stock price. If we were to erroneously determine that a program of study is not required to measure student progress in clock hours, we would likely be liable for repayment of a portion of the Title IV Program funds provided to students in that program of study based on the difference between the amount of funds those students received and the amount they were eligible to receive.

Government and regulatory agencies and third parties have brought, and may bring additional, investigations, claims or actions against us based on alleged violations of the extensive regulatory requirements applicable to us, which could require us to pay monetary damages, receive other sanctions and expend significant resources to defend those claims or actions. We are subject to investigations and claims of non-compliance with regulatory standards and other actions brought by regulatory agencies, students, shareholders and other parties. Some of the more significant pending investigations, claims and actions are described below. If the results of any investigations, claims and/or actions are unfavorable to us, we may be required to pay money damages or be subject to fines, penalties, injunctions, operational limitations, loss of eligibility to participate in federal or state financial aid programs, debarments, additional oversight and reporting, or other civil and criminal sanctions. Those sanctions could have a material adverse effect on our financial condition, results of operations and cash flows. In addition, we have incurred, and expect to continue to incur, significant legal and other expenses in connection with investigations, claims and actions, which could have a material adverse effect on our financial condition, results of operations and cash flows. Investigations, claims and actions have and will continue to cause a substantial diversion of our management’s attention and resources from our ongoing business operations, which could have a material adverse effect on our business, financial condition, results of operations and cash flows. Adverse publicity regarding any of those investigations, claims and/or actions could also negatively affect our business and the market price of our common stock. Further, the fact that investigations, claims and actions are pending against us has resulted in, and could in the future result in, increased scrutiny, the withholding of authorizations and/or the imposition of other sanctions by SAs, the ACs and other regulatory agencies governing us. See “Business – Highly Regulated Industry.”

-29-

On May 18, 2012, we received a Civil Investigative Demand (the “Original CID”) from the U.S. Consumer Financial Protection Bureau (the “CFPB”). In September 2013, the CFPB withdrew the Original CID and we received a new Civil Investigative Demand (the “New CID”) from the CFPB. Both the Original CID and the New CID provided that the purpose of the CFPB’s investigation was, in part, “to determine whether for-profit post-secondary companies, student loan origination and servicing providers, or other unnamed persons have engaged or are engaging in unlawful acts or practices relating to the advertising, marketing, or origination of private student loans.” Both the Original CID and the New CID contained broad requests for oral testimony, production of documents and written reports related to private education loans made to our students, internal financing provided to our students and certain other aspects of our business. We provided documentation and other information to the CFPB, while preserving our rights to object to its inquiry.

On February 26, 2014, the CFPB filed a complaint against us in the United States District Court for the Southern District of Indiana under the following caption: Consumer Financial Protection Bureau v. ITT Educational Services, Inc. (the “CFPB Litigation”). The complaint alleges, among other things, that we violated:

• Section 1036(a)(1) of the Consumer Financial Protection Act of 2010 (the “CFPA”), 12 U.S.C. § 5536(a)(1), which prohibits unfair, deceptive and abusive acts and practices, from July 21, 2011 through December 2011, by:

• subjecting consumers to undue influence or coercing them into taking out private education loans through a variety of unfair acts and practices designed to interfere with the consumers’ ability to make informed, uncoerced choices;

• taking unreasonable advantage of consumers’ inability to protect their interest in selecting or using private education loans; and

• taking unreasonable advantage of consumers’ reasonable reliance on us to act in the consumers’ interests; and

• the Truth in Lending Act, 15 U.S.C. §§ 1601 et seq., and Regulation Z thereunder, 12 C.F.R. Part 1026, which require certain disclosures to be made in writing to consumers in connection with the extension of consumer credit, since March 2009, by failing to disclose a discount that constituted a finance charge.

On April 28, 2014, we filed a motion to dismiss the CFPB Litigation for, among other reasons, lack of jurisdiction and failure to state a claim upon which relief can be granted. We have defended, and intend to continue to defend, ourselves vigorously against the allegations made in the complaint.

On October 30, 2012, we received a Civil Investigative Demand (“CID”) from the Massachusetts Office of the Attorney General (“MAG”). The MAG’s CID provides that the MAG is investigating allegations that we may have violated Massachusetts General Laws, Chapter 93A, Section 2(a) by “engaging in unfair or deceptive practices in connection with marketing and advertising job placement and student outcomes, the recruitment of students, and the financing of education.” The MAG’s CID contains broad requests for production of documents related to our students in Massachusetts, including the financial aid available to those students, our recruitment of those students, the career services that we offer to those students, our marketing and advertising, the retention and graduation rates of those students and many other aspects of our business. We are cooperating with the MAG in its investigation, and we have provided documentation, communications and other information to the MAG in response to the CID. The ultimate outcome of the MAG investigation, however, could have a material adverse effect on our financial condition, results of operations and/or cash flows.

In January, February, April and May 2014, we received subpoenas and/or CIDs from the Attorneys General of Arkansas, Arizona, Colorado, Connecticut, Hawaii, Idaho, Iowa, Kentucky, Missouri, Nebraska, North Carolina, Oregon, Pennsylvania, Tennessee and Washington under the authority of each state’s consumer protection statutes. The Attorney General of the Commonwealth of Kentucky has informed us that it will serve as the point of contact for the multistate group to respond to questions relating to the subpoenas and CIDs. The subpoenas and CIDs contain broad requests for information and the production of documents related to our students and practices, including marketing and advertising, recruitment, financial aid, academic advising, career services, admissions, programs, licensure exam pass rates, accreditation, student retention, graduation rates and job placement rates, as well as many other aspects of our business. We believe that several other companies in the proprietary postsecondary education sector have received similar subpoenas and CIDs. We are cooperating with the Attorneys General of the states involved. The ultimate outcome of the state Attorneys General investigation, however, could have a material adverse effect on our financial condition, results of operations and/or cash flows.

On February 27, 2014, the New Mexico Attorney General filed a complaint against us in the District Court of New Mexico under the following caption: State of New Mexico, ex rel. Gary K King, Attorney General v. ITT Educational Services, Inc., et al. (the “New Mexico Litigation”). On April 4, 2014, we removed the New Mexico Litigation to the U.S. District Court for the District of New Mexico. The complaint alleges, among other things, that we engaged in a pattern and practice of exploiting New Mexico consumers by using deceptive, unfair, unconscionable and unlawful business practices in the marketing, sale, provision and financing of education goods and services in violation of New Mexico’s Unfair Practices Act. In particular, the complaint contains allegations that:

• we misrepresented matters related to our nursing education program, including, without limitation, its programmatic accreditation status, the transferability of credits earned in the program and the curriculum of the program;

-30-

• we misrepresented the terms of the financial aid available to students and the cost of our programs;

• we engaged in unfair or deceptive trade practices;

• we failed to issue refunds; and

• our form enrollment agreement contained unenforceable and unconscionable provisions.

The complaint seeks:

• an order declaring portions of our enrollment agreement illusory, unconscionable and unenforceable;

• preliminary and permanent injunctive relief;

• disgorgement of unjust enrichment amounts;

• unspecified civil penalty amounts;

• restitution; and

• reasonable costs, including investigative costs.

We have defended, and intend to continue to defend, ourselves vigorously against the allegations made in the complaint.

On February 8, 2013, we received the first of many subpoenas from the SEC. In a letter accompanying each of the subpoenas, the SEC states that it is conducting an investigation of us. The SEC’s subpoenas requested the production of documents and communications that, among other things, relate to our actions and accounting associated with:

• agreements that we entered into with the 2009 Entity to create the 2009 Loan Program, including, without limitation, the 2009 RSA;

• agreements that we entered into with unrelated parties on January 20, 2010 to create the PEAKS Program, which made private education loans available to our students to help pay the students’ cost of education that student financial aid from federal, state and other sources did not cover, pursuant to which:

• an unrelated lender originated private education loans to our eligible students and, subsequently, sold those loans to the PEAKS Trust;

• the PEAKS Trust issued the PEAKS Senior Debt in the aggregate principal amount of $300.0 million to investors; and

• under the PEAKS Guarantee, we guarantee payment of the principal, interest and, prior to February 2013, certain call premiums owed on the PEAKS Senior Debt, the administrative fees and expenses of the PEAKS Trust and a minimum required ratio of assets of the PEAKS Trust to outstanding PEAKS Senior Debt (the “Asset/Liability Ratio”);

• certain accounting-related documents associated with the 2009 Loan Program, the PEAKS Program and internal student financing; and

• our board of directors-related materials associated with the 2009 Loan Program, the PEAKS Program and internal student financing.

We have provided the information requested, including testimony of senior employees. On August 7, 2014, we received a “Wells Notice” from the staff of the Division of Enforcement (the “Staff”) of the SEC notifying us that the Staff had made a preliminary determination to recommend that the SEC file an enforcement action against us. According to the Staff, the enforcement action would allege violations of Sections 10(b), 13(a) and 13(b)(2) of the Exchange Act and Rules 10b-5, 12b-20, 13a-1, 13a-11, 13a-13 and 13a-15 under the Exchange Act. The proposed action relates primarily to certain disclosures and accounting surrounding the two loan programs noted above. The SEC’s notice said that the Staff’s recommendation may:

• involve a civil injunctive action, public administrative proceeding and/or cease-and-desist proceeding against us; and

• seek remedies that include an injunction, a cease-and-desist order and monetary relief, including civil monetary penalties.

-31-

A Wells Notice is neither a formal allegation nor a finding of wrongdoing. Instead, it is a preliminary determination by the Staff to recommend that the SEC file a civil enforcement action or administrative proceeding against the recipient. Under the SEC’s procedures, a recipient of a Wells Notice has an opportunity to respond in the form of a Wells submission that seeks to persuade the SEC that such an action should not be brought. Accordingly, we made a submission to the Staff in response to the Wells Notice setting forth why the factual record does not support the enforcement action recommended by the Staff and that any perceived shortcomings were made in good faith. Although we intend to defend ourselves vigorously should the SEC authorize any legal action that does not comport with our view of the facts, we cannot predict the outcome of any legal action or whether the matters will result in any settlement. The ultimate outcome of the SEC investigation, any legal action by the SEC or any settlement could have a material adverse effect on our financial condition, results of operations and/or cash flows.

Investigations, claims and actions against companies in our industry could adversely affect our business and stock price. Like us, the operations of a number of companies in the postsecondary education industry have been subject to intense regulatory scrutiny. In some cases, allegations of wrongdoing have resulted in reviews or investigations by the U.S. Department of Justice, SEC, ED, CFPB, Government Accountability Office, Department of Veterans Affairs, Federal Trade Commission, Department of Defense, state education and professional licensing authorities, states’ attorney general offices or other state agencies. These investigations and actions have alleged, among other things, deceptive trade practices and noncompliance with regulations. These allegations have attracted adverse media coverage that may negatively affect public perceptions of proprietary education institutions, including the ITT Technical Institutes and Daniel Webster College. Adverse media coverage regarding other companies in the proprietary education sector or regarding us directly could damage our reputation, could result in lower enrollments, revenue and profit, and could have a negative impact on our stock price. These allegations, reviews, investigations and enforcement actions and the accompanying adverse publicity could also result in increased scrutiny of, and have a negative impact on, us and our industry.

Changes in the amount or availability of veterans’ educational benefits or Department of Defense tuition assistance programs could materially and adversely affect our business. Certain members of the U.S. Congress and the Obama Administration have increased their focus on Department of Defense tuition assistance and veterans educational benefits that are used for programs of study offered at proprietary education institutions, particularly distance education programs of study. On April 27, 2012, President Obama signed Executive Order 13607, Establishing Principles of Excellence for Educational Institutions Serving Service Members, Veterans, Spouses, and Other Family Members (the “EO”). The EO requires an institution to agree to comply with the principles of excellence described in the EO in order for the institution to participate in the Yellow Ribbon Program for Veterans under the Post-9/11 GI Bill or the Tuition Assistance Program for active duty service members. Among other things, the principles of excellence include a requirement that institutions implement a refund policy for veterans and service members that is aligned with the Return Policy. In addition, federal legislation has been introduced that would revise the 90/10 Rule to count Department of Defense tuition assistance and veterans’ educational benefits toward the 90% limit. To the extent that any laws, regulations or other requirements are adopted that limit or condition the amount of educational benefits that veterans and active duty service members can use toward their costs of education at proprietary education institutions or in distance education programs, or that limit or condition the participation of proprietary education institutions or distance education programs in veteran or military tuition assistance programs or in Title IV Programs with respect to veteran or military tuition assistance programs, our enrollments, results of operations and financial condition could be materially and adversely affected.

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. Graduates of certain of our programs of study offered through our Breckinridge School of Nursing and Health Sciences seek professional licensure in their chosen field following graduation. Their success in obtaining licensure depends on several factors, including:

• the merits of the individual student; and

• whether the campus and the program were authorized by the appropriate SAs and/or approved by an accrediting commission and/or professional association.

Certain SAs refuse to license students who graduate from programs that do not meet specific types of programmatic accreditation, residency or other state requirements. In the event that one or more SAs refuses to recognize our graduates for professional licensure in the future based on factors relating to our campuses or their programs, student enrollment in those programs would be negatively impacted which could have an adverse effect on our results of operations. In addition, we could be exposed to claims that would force us to incur legal and other expenses that could have a material adverse effect on our results of operations.

Laws and regulations relating to marketing practices could limit our marketing activities or cause us to discontinue the marketing activities that we currently use or plan to use, and failure to comply with such laws and regulations could result in statutory damages or lawsuits against us. We rely on a variety of direct-to-consumer marketing techniques, including telemarketing, email marketing and postal mailings, and we are subject to various laws and regulations which govern marketing and advertising practices. For example, the Telephone Consumer Protection Act of 1991, the Telemarketing Sales Rule, the CAN-SPAM Act of 2003 and various other federal and state laws and regulations impose requirements on the manner and extent to which we can market our programs to prospective students. A recent amendment to the Telephone Consumer Protection Act requires, among other things, that we receive prior express written consent from consumers in order to place telemarketing calls to

-32-

wireless phones using certain technology. Efforts to comply with the new regulations may negatively affect our ability to contact prospective students and, therefore, our revenue and profitability. Newly-adopted or amended laws and regulations relating to telemarketing, and increased enforcement of such laws and regulations by governmental agencies or by private litigants, could adversely affect our business, operating results and financial condition. Our failure to comply with laws and regulations applicable to our marketing activities could also result in statutory damages and class action lawsuits against us.

The Early Career Academy is highly regulated, may require significant expenditures by us and may not be a successful business endeavor. To date, we have become the EMO for only one public charter high school. As such, the Early Career Academy is in the initial stages, and we cannot assure you that it will be a successful endeavor for us in the foreseeable future or at all. The Early Career Academy business is subject to extensive regulation, and we believe that it may require significant expenditures by us. Some of the factors that could have an adverse effect on the business of the Early Career Academy include, among others:

• a reduction in government funding for, or a loss of tax-exempt status or funding eligibility by, public charter high schools;

• the poor performance or misconduct by the Early Career Academy or operators of other public charter high schools;

• legal claims challenging various aspects of public charter high schools; and

• non-compliance with applicable regulations.

Risks Related to Our Business

Our guarantee obligations under the private education loan programs have had, and could continue to have, a material adverse effect on us. We have entered into risk sharing and guarantee agreements with entities related to private education loans provided to our students to help pay the students’ cost of education that student financial aid from federal, state and other sources does not cover. We settled all of our guarantee obligations under a risk sharing agreement that we entered into in 2007 (the “2007 RSA”) through a payment of $46.0 million in January 2013. Under the 2009 RSA, we guarantee the repayment of any private education loans that are charged off above a certain percentage of the private education loans made under the 2009 RSA, based on dollar volume. Under the PEAKS Guarantee, we guarantee:

• the payment of principal (i.e., approximately $214.5 million as of June 30, 2014) and interest on the outstanding PEAKS Senior Debt;

• the payment of administrative fees and expenses to the PEAKS Trust; and

• a minimum required Asset/Liability Ratio.

Our obligations under the PEAKS Guarantee will remain in effect until the PEAKS Senior Debt and the PEAKS Trust’s fees and expenses are paid in full. Our obligations under the 2009 RSA will remain in effect, until all private education loans made under the 2009 Loan Program are paid in full or charged off. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Private Education Loan Program Obligations,” for information regarding the guarantee payments, the payments on behalf of student borrowers that we made under the PEAKS Program to avoid defaults by those borrowers on their PEAKS Trust Student Loans (“Payments on Behalf of Borrowers”) and the payments that we made related to the RSAs in 2013. See also Note 10 – Variable Interest Entities and Note 16 – Commitments and Contingencies of the Notes to Consolidated Financial Statements.

The repayment performance of the private education loans under the RSAs has been significantly worse, and the charge-off rate on those loans has been significantly higher, than we originally projected when we entered into the RSAs and our subsequent projections. Further, under the PEAKS Guarantee, due to the Consolidation and other factors, we were not in compliance with certain financial metrics under the PEAKS Program, which resulted in an increase in the required minimum Asset/Liability Ratio and a requirement that we make higher payments under the PEAKS Guarantee. As a result of the higher charge-off rates of the private education loans made under both the 2009 Loan Program and PEAKS Program and the increased Asset/Liability Ratio, we have made payments related to the RSAs that have been significantly higher than we initially anticipated, and we currently estimate that we will be required to make payments in material amounts under the RSAs in 2014 and future years. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Private Education Loan Program Obligations” and Note 16 – Commitments and Contingencies of the Notes to Consolidated Financial Statements, for the amount of payments that we currently estimate we will be required to make through the remaining terms of the RSAs.

        As a consequence of the restatement of our unaudited condensed consolidated financial statements in our Quarterly Reports on Form 10-Q for the fiscal quarters ended March 31, 2013, June 30, 2013 and September 30, 2013, certain quarterly reports that we were required to deliver to the indenture trustee of the PEAKS Trust under the PEAKS Guarantee were inaccurate. We delivered corrected quarterly reports to the indenture trustee on October 9, 2014. If we had delivered accurate quarterly reports, or with respect to periods in 2014 through June 30, 2014, delivered quarterly reports, to the indenture trustee of the PEAKS Trust, we believe the indenture trustee would have made payment demands beginning in April 2013, requiring us to make additional payments under the PEAKS Guarantee totaling approximately $60.3 million in the aggregate, in order to maintain an Asset/Liability Ratio of 1.40/1.00. On October 9, 2014, we made a guarantee payment of $50.0 million, which payment, along with other payments that we have made to the PEAKS Trust in recent months, included amounts that would have become due between April 2013 and September 2014, had we delivered accurate quarterly reports. The delivery of inaccurate quarterly reports constituted a breach of the PEAKS Guarantee and an event of default under the indenture under the PEAKS Program (the “PEAKS Indenture”). In the event of a default under the PEAKS Indenture, the payment of the entire amount of the PEAKS Senior Debt could be accelerated, which would trigger our obligation to pay the full amount of the PEAKS Senior Debt pursuant to our obligations under the PEAKS Guarantee, additional remedies could be sought against us and there could be a cross-default under the Amended Credit Agreement, any of which would have a material adverse effect on our results of operations, financial condition and cash flows. We believe that the delivery of the corrected quarterly reports and making the additional guarantee payments satisfied our obligations under the PEAKS Guarantee with respect to these matters and cured the event of default under the PEAKS Indenture. We cannot predict, however, whether the holders of the PEAKS Senior Debt will assert other breaches of the PEAKS Guarantee by us or assert that any breach of the PEAKS Guarantee or event of default under the PEAKS Indenture was not properly cured.

-33-

We have offset approximately $9.1 million against amounts owed to us by the 2009 Entity under a revolving promissory note (the “Revolving Note”), instead of making additional payments under the 2009 RSA in that amount. We understand the 2009 Entity’s position to be that the offset was improper and, as a result, we are in default under the 2009 RSA. In the event of a default by us under the 2009 RSA related to the offset, we may be required to pay to the 2009 Entity approximately $8.6 million, representing the amount of the offset, net of approximately $0.5 million of recoveries from charged-off loans that are owed, but have not been paid, to us. If the 2009 Entity instead were to withdraw cash collateral in that amount from the restricted bank account maintained to hold collateral to secure our obligations under the 2009 RSA, we would be required to deposit that amount of cash in the account to maintain the required level of collateral under the 2009 RSA.

As a consequence of the restatement of our unaudited condensed consolidated financial statements in our Quarterly Reports on Form 10-Q for the fiscal quarters ended March 31, 2013, June 30, 2013 and September 30, 2013, certain quarterly compliance certificates that we were required to deliver to the 2009 Entity under the 2009 RSA were inaccurate. Those inaccuracies did not affect our compliance with the financial ratio covenants in the 2009 RSA as of March 31, 2013. We were not, however, in compliance with the financial ratio covenants in the 2009 RSA as of June 30, 2013 and subsequent measurement dates. Further, due to our failure to timely file our Annual Report on Form 10-K for the fiscal year ended December 31, 2013 and our Quarterly Reports on Form 10-Q for the fiscal quarters ended March 31, 2014 and June 30, 2014, we did not timely deliver the required compliance certificates under the 2009 RSA with respect to those periods. As a result of our noncompliance with the financial ratio covenants as of June 30, 2013 and subsequent measurement dates, the amount of collateral required to be maintained in the restricted bank account has been increased by approximately $2.6 million. We intend to make in October 2014 a deposit in that amount to the restricted bank account to be held as additional collateral under the 2009 RSA.

In addition, at the end of each reporting period, we assess whether we should recognize a contingent liability related to the 2009 RSA and, prior to February 28, 2013, the PEAKS Program. Due to a number of factors, primarily the significant charge-off rate of the private education loans under the 2009 Loan Program, the amount of the contingent liability that we recorded related to the 2009 RSA as of December 31, 2013 increased substantially to approximately $116.9 million. Further, the amount of the contingent liability that we record related to the 2009 RSA in periods after December 31, 2013 could further increase substantially. The amount of the contingent liability that we record related to the 2009 RSA has negatively impacted, and could continue to negatively impact, our compliance with covenants under the Amended Credit Agreement, the financial metrics under the RSAs and the requirements of the ED, SAs and ACs.

Even if the charge-off rates of the private education loans made under the 2009 Loan Program and PEAKS Program remain at levels similar to the charge-off rates that we are currently utilizing in our estimates of future payment amounts under the RSAs and the contingent liability amount related to the 2009 RSA, those payment amounts and the contingent liability amount could have a material adverse effect on our liquidity, cash flows and financial position, and could cause us to violate the requirements of the ED, SAs and ACs and/or our covenants under the Amended Credit Agreement.

Under the 2009 RSA, we have an obligation to make the monthly payments due and unpaid on those private education loans that have been charged off above a certain percentage (“Regular Payments”). Instead of making Regular Payments, however, we may elect to:

• pay the then outstanding balance (plus accrued and unpaid interest) of those private education loans that have been charged off above a certain percentage and, with respect to which, an amount equal to at least ten monthly payments has been paid; or

• pay the then outstanding balance (plus accrued and unpaid interest) of those private education loans that have been charged off above a certain percentage and, with respect to which, an amount equal to at least ten monthly payments has not been paid, plus any interest that would otherwise have been payable until ten monthly payments had been made, discounted at the rate of 10% per annum,

(collectively, “Discharge Payments”). Our estimates of the future payment amounts under the 2009 RSA and the timing of those payments, assume, among other factors, that we make Discharge Payments to the fullest extent possible in 2018 and later years. If we do not make the Discharge Payments as assumed in 2018 and later years, due to an inability to make payments in those amounts or for any other reason, we estimate that we will have to pay significantly larger amounts under the 2009 RSA over the remaining term of that agreement.

-34-

Our estimates of the future charge-off rates of the private education loans made under the 2009 Loan Program and PEAKS Program and of other factors that we utilize in our projections are based on numerous assumptions which may not prove to be correct and involve a number of risks and uncertainties. We would be required to pay additional material amounts under the RSAs and we could be required to make payments under the RSAs earlier than currently projected and record a higher contingent liability amount related to the 2009 RSA, in the event that:

• the charge-off rates on the private education loans are higher than we are currently estimating;

• other factors utilized in our projections are worse than currently estimated; and/or

• other factors negatively impact our compliance with the financial metrics to which we are subject under the RSAs.

Any of these events could have a material adverse effect on us, including, among others, on our:

• results of operations, financial condition and cash flows;

• liquidity and ability to pay our obligations as they become due;

• ability to comply with the requirements of the ED, SAs and ACs to which we are subject, resulting in significant negative consequences;

• ability to comply with our covenants under the Amended Credit Agreement, resulting in a default thereunder, which could have a material adverse effect on our results of operations, financial condition, cash flows, liquidity and ability to comply with our other obligations; and

• ability to make required payments under the RSAs, resulting in a default thereunder, which, in the case of a default under the PEAKS Guarantee, could result in an acceleration of the entire amount of the PEAKS Senior Debt and our obligations to pay the full amount of the PEAKS Senior Debt pursuant to the terms of the PEAKS Guarantee, additional remedies against us and there could be a cross-default under the Amended Credit Agreement, any of which would have a material adverse effect on our results of operations, financial condition and cash flows.

If we fail to effectively identify, establish and operate new campuses and learning sites, our growth may be slowed. As part of our business strategy, we anticipate operating new campuses and adding learning sites to existing campuses at locations throughout the United States. Establishing new campuses and learning sites poses challenges and requires us to make investments in management and capital expenditures, incur marketing and advertising expenses and devote other resources that are different, and in some cases greater, than those required with respect to the operation of existing campuses. To operate a new campus or add a learning site, we would be required to obtain the appropriate authorizations from the applicable SAs and ACs, which may be conditioned or delayed in a manner that could significantly affect our growth plans. In addition, to be eligible to participate in Title IV Programs, a new campus or learning site must be certified by the ED, either before or after it starts disbursing Title IV Program funds to its students. We cannot be sure that we will be able to identify suitable expansion opportunities to help maintain or accelerate our current geographic expansion or that we will be able to successfully integrate or profitably operate any new campuses or learning sites. Any failure by us to effectively identify, establish and manage the operations of newly established campuses or learning sites could slow our growth, make any newly established campuses or learning sites more costly to operate than we had planned and have a material adverse effect on our expansion plans and results of operations.

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. Part of our business strategy also includes increasing the number, levels, lengths and disciplines of programs offered at our campuses. Developing and offering new programs pose challenges and require us to make investments in research and development, management and capital expenditures, to incur marketing and advertising expenses and to devote other resources that are in addition to, and in some cases greater than, those associated with our current program offerings. In order to offer new programs at different levels at our campuses, we may be required to obtain the appropriate authorizations from the ED, SAs, ACs and, in certain circumstances, specialized programmatic accrediting commissions, which may be conditioned or delayed in a manner that could affect the programs offered at our campuses. We cannot be sure that we will be able to identify new programs to help maintain or accelerate our current geographic expansion, that we will be able to obtain the requisite authorizations to offer new programs at different levels at our campuses or that students will enroll in any new programs that we offer at our campuses. Any failure by us to effectively identify, develop, obtain authorization to offer and teach new programs at our campuses could have a material adverse effect on our expansion plans and results of operations. See “Business – Business Strategy – Enhance Results at Each Institution” and “—If the ED’s proposed new gainful employment regulations are promulgated by the ED in a manner that withstands challenge, and if any of our programs of study fail to qualify as programs that lead to gainful employment in a recognized occupation under those regulations, students attending those programs of study will be unable to use funds from Title IV Programs to help pay their education costs.”

Our success depends, in part, on our ability to keep pace with changing market needs and technology. Increasingly, prospective employers of our graduates demand that their entry-level employees possess appropriate technical skills and also appropriate soft skills, such as communication, critical thinking and teamwork skills. The skills that employees need may evolve rapidly in a changing economic and technological environment. Accordingly, it is important for our programs to evolve in

-35-

response to those economic and technological changes. The expansion of our existing programs and the development of new programs may not be accepted by prospective students or the employers of our graduates. Even if we are able to develop acceptable new programs, we may not be able to begin offering those new programs as quickly as required by the employers we serve or as quickly as our competitors offer similar programs. If we are unable to adequately respond to changes in market requirements due to regulatory or financial constraints, technological changes or other factors, our ability to attract and retain students could be impaired and the rates at which our graduates obtain jobs involving their fields of study could suffer.

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. The awareness of our programs among working adults and recent high school graduates is important to the success of our campuses. If we were unable to successfully market or advertise our programs, our ability to attract and enroll prospective students in our programs would be adversely affected and, consequently, our ability to increase revenue or maintain profitability would be impaired. The following are some of the factors that could prevent us from successfully marketing or advertising our programs:

• student dissatisfaction with our programs and services;

• employer dissatisfaction with our programs and services;

• high costs of certain types of advertising media;

• adverse publicity regarding us, our competitors or proprietary education generally; and

• our failure to maintain or expand our brands or other factors related to our marketing or advertising practices.

Increases in institutional scholarships and internal student financing could have a material adverse effect on our cash flows, revenue and student population. During the fourth quarter of 2012, we introduced an institutional scholarship program, called the Opportunity Scholarship, which is intended to help reduce the cost of an ITT Technical Institute education and increase student access to our programs of study. By June 30, 2013, the Opportunity Scholarship was being offered to students at all of the ITT Technical Institute campuses. We believe that the Opportunity Scholarship has, and will continue to, reduce our students’ need and use of private education loans, as well as decrease the internal student financing that we provide to our students. As an institutional scholarship, our revenue is reduced by the amount of the Opportunity Scholarship awarded. In addition, no cash payments are received and students will not be obligated to make payments to us of the amounts awarded under the Opportunity Scholarship. Therefore, the amounts receivable from students to us, as well as our revenue, decreased in 2013 and in the six months ended June 30, 2014 and, we believe, may continue to decrease in the remainder of 2014.

The increased amount of internal student financing that we provided to our students over the last few years has negatively impacted our liquidity and exposed us to greater credit risk. The internal student financing that we provide to our students consists of non-interest bearing, unsecured credit extended to our students. Internal student financing typically provides for payment to us by our students by the end of the student’s academic year or enrollment, whichever occurs first, compared to payments from private education loan programs, which we typically received at the beginning of a student’s academic year. This change in the timing of payments had a material adverse effect on our cash flows from operations in 2012 and 2013. In addition, we have the risk of collection with respect to our internal student financing, which caused us to increase our allowance for doubtful accounts in 2012 and 2013 and resulted in an increase in our bad debt expense as a percentage of revenue in 2012 and 2013. The increase in internal student financing was the primary cause of the increase in our days sales outstanding and the decrease in our deferred revenue in 2012, primarily due to the decrease in the amount of funds received from private education loans made to our students by third-party lenders.

We plan to continue to offer the Opportunity Scholarship to eligible students which we believe will reduce the amount of internal student financing that we provide to our students. The increased use of institutional scholarships and awards by our students and any additional internal student financing provided to our students could result in a continuation of the adverse factors that are described above, including a material adverse effect on our financial condition and cash flows.

If we experience losses in excess of the amounts that we have accrued 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, results of operations and cash flows. We offer internal student financing to help students pay the portion of their cost of education that is not covered by financial aid or other funds. These balances are unsecured and not typically guaranteed. These balances have increased significantly in the last few years as a result of the number of our students who did not qualify for private education loans from third parties due to their prior credit history and the limited funding available under private education loan programs for which those students could qualify. The introduction of the Opportunity Scholarship has reduced, and will continue to reduce, our students’ need for internal student financing. Internal student financing adversely affects our cash flows and exposes us to greater credit risk. Although we have accrued for estimated losses related to unpaid student balances, losses in excess of the amount we have accrued for bad debts 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. Since much of the financing our students receive is tied to floating interest rates, higher interest rates cause a corresponding increase in the cost to our existing and prospective students of financing their education,

-36-

which could result in a reduction in the number of students attending our campuses and, consequently, in our revenue. Higher interest rates could also contribute to higher default rates with respect to our students’ repayment of Title IV Program and private education loans. High default rates may, in turn, adversely impact our eligibility to participate in Title IV Programs, trigger our guarantee obligations with respect to private education loan programs and/or negatively affect the willingness of private lenders to make private education loan programs available to our students, which could result in a reduction in the number of students attending our campuses and could have a material adverse effect on our financial condition, results of operations and cash flows. As a result of those adverse effects on our students’ ability to finance their cost of education, our receivables could increase and/or our student population could decrease, which could have a material adverse effect on our financial condition, results of operations and cash flows.

The ability of the CPD to provide education-related services depends, in large part, on obtaining authorizations from vendors and trade associations to use their content in the CPD’s education-related services. Part of our business strategy includes developing and providing education-related services to students and other constituencies. Through the CPD, we are developing and providing education-related services, including training programs, curricula, assessments and consulting. The majority of the content of the education-related services provided by the CPD is authorized under agreements between the CPD and vendors or trade associations (the “Content Agreements”). We cannot be sure that we will be able to maintain or renew the existing Content Agreements or enter into new Content Agreements. Any failure by us to effectively identify or develop content for education-related services, or maintain, renew or obtain Content Agreements with respect to our education-related services, could have a material adverse effect on our expansion plans and results of operations.

The search for, and transition of, a new chief executive officer could adversely affect us, and our inability to attract, hire or retain key personnel could harm our business. Our success to date has depended, and will continue to depend, largely on the skills, efforts and motivation of our executive officers. As previously disclosed, Kevin M. Modany, our Chief Executive Officer, will resign from that position on February 4, 2015, subject to an extension by up to three months, or earlier termination, at our option. Our Board of Directors is conducting a search for a replacement Chief Executive Officer. The planned resignation of Mr. Modany may cause disruption in our business, strategic and employee relationships, which may significantly delay or prevent the achievement of our business objectives, and may cause a loss of key employees or declines in the productivity of existing employees. The search for a permanent Chief Executive Officer may take many months or more, further exacerbating these factors. Competition for senior management personnel is intense and we cannot assure you that we will be able to select and employ a new Chief Executive Officer in a timely manner. Identifying and hiring an experienced and qualified Chief Executive Officer is typically difficult, and may be even more difficult under the circumstances affecting us at this time. Further, we may not be able to effectively compete with compensation packages offered by other companies that are recruiting senior executive officers, due to the limitations imposed on us by the Incentive Compensation Prohibition. We may be unable to attract a suitably qualified individual for the Chief Executive Officer position, or we may be required to pay increased base salary compensation in order to do so. Any or all of these risks could adversely affect our business, operating results or financial condition.

Our search for a new Chief Executive Officer may also adversely affect our business or impose additional risks, such as the following:

• disruption of our business or distraction of our employees and management;

• difficulty recruiting, hiring, motivating and retaining other talented and skilled personnel;

• increased stock price volatility; and

• difficulty in establishing, maintaining or negotiating business or strategic relationships or transactions.

We cannot assure you that the transition to a new Chief Executive Officer will be smooth or successful. Leadership transitions can be inherently difficult to manage and may cause uncertainty or a disruption to our business or may increase the likelihood of turnover in other key officers and employees. Changes to strategic or operating goals with the appointment of new executives may, themselves, prove to be disruptive. Periods of transition in senior management leadership are often difficult as the new executives gain detailed knowledge of the company’s operations and may result in cultural differences and friction due to changes in strategy and style. During the Chief Executive Officer transition period, there may be uncertainty among investors, employees, creditors and others concerning our future direction and performance. Any disruption or uncertainty could have a material adverse effect on our results of operations and financial condition and the market price of our common stock.

During our search for, and transition of, a new Chief Executive Officer, it is important that we retain key personnel. All of our officers and other employees are at-will employees, which means they can terminate their employment relationship with us at any time, and their knowledge of our business and industry would be difficult to replace. If we lose the services of key personnel, especially during this period of leadership transition, or do not hire or retain other personnel for key positions, including the Chief Executive Officer position, our business, results of operations and stock price could be adversely affected.

Our success also depends in large part on our ability to attract and retain highly qualified faculty, school administrators and corporate management. We face competition in the attraction and retention of personnel who possess the skill sets that we seek. In addition, key personnel may leave us and subsequently compete against us. Furthermore, we do not currently carry “key man” life insurance. The loss of the services of any of our key personnel, especially during this period of leadership transition, or our failure to attract and retain other qualified and experienced personnel on acceptable terms, could impair our ability to successfully manage our business.

-37-

In order to support revenue growth, we need to hire, retain, develop and train employees who are responsible for student recruiting, financial aid, registration, teaching and career services. Our ability to develop a strong team of employees with these responsibilities may be affected by a number of factors, including:

• our ability to timely and effectively train and motivate our employees in order for them to become productive;

• restrictions imposed by regulatory bodies on the method of compensating employees, such as the Incentive Compensation Prohibition;

• our ability to attract enough prospective students to our program offerings; and

• our ability to effectively manage a multi-institutional and multi-location educational organization.

If we are unable to hire, retain, develop and train employees who are responsible for student recruiting, financial aid, registration, teaching and career services, our operations would be adversely affected.

Recent and ongoing adverse matters affecting us and our industry, including, without limitation, investigations, claims and lawsuits, and the negative publicity associated with those matters, may make it significantly more difficult for us to attract, motivate and retain employees at all levels of our organization. In addition, volatility or lack of performance in our stock price may also affect our ability to attract and retain key employees, including a new Chief Executive Officer. Our key executives may be more inclined to leave us, because the exercise prices of their stock options are significantly below the market price of our common stock or the perceived value of their restricted stock units continues to decline.

Competition could decrease our market share or force us to increase spending. The postsecondary education market in the United States is highly fragmented and competitive, with no single private or public institution enjoying a significant market share. Our campuses compete for students with degree- and non-degree-granting institutions, which include public and private nonprofit colleges and proprietary institutions, as well as with alternatives to higher education, such as military service or immediate employment. Certain public and private colleges offer programs similar to those offered by our campuses at a lower tuition cost due in part to government subsidies, foundation grants, tax deductible contributions or other financial resources not available to proprietary institutions. Other proprietary institutions offer programs that compete with those of our campuses. Certain of our competitors in both the public and private sectors have greater financial and other resources than we do. All of these factors could affect the success of our marketing efforts and enable our competitors to recruit prospective students more effectively.

We may be required to increase spending in response to competition in order to retain or attract students or pursue new market opportunities. As a result, our financial condition, results of operations and cash flows may be negatively affected. We cannot be sure that we will be able to compete successfully against current or future competitors or that competitive pressures faced by us will not adversely affect our business, financial condition, results of operations or cash flows.

We may be unable to successfully complete or integrate acquisitions. In August 2013, we acquired Cable Holdings, and in January 2014, we acquired Great Equalizer, Inc. and CompetenC Solutions, Inc. We may consider additional selective acquisitions of schools or education-related businesses in the future. We may not be able to complete acquisitions on favorable terms or, even if we do, we may not be able to successfully integrate the acquired businesses into our business. Acquisition challenges include, among others:

• regulatory approvals;

• significant capital expenditures;

• assumption of known and unknown liabilities;

• our ability to control costs; and

• our ability to integrate new personnel.

The successful integration of acquisitions may also require substantial attention from our senior management and the senior management of the acquired business, which could decrease the time that they devote to the day-to-day management of our business. If we do not successfully address risks and challenges associated with acquisitions, including integration, acquisitions could harm, rather than enhance, our operating performance.

In addition, if we consummate an acquisition, our capitalization and results of operations may change significantly. An acquisition could result in:

• the incurrence of debt and contingent liabilities;

• an increase in interest expense, amortization expenses, goodwill and other intangible assets;

• charges relating to integration costs; and

• an increase in the number of shares outstanding.

These results could have a material adverse effect on our results of operations or financial condition or result in dilution to current stockholders.

-38-

Terrorist attacks and other acts of violence or war could have an adverse effect on our operations. Terrorist attacks and other acts of violence or war could disrupt our operations. Attacks or armed conflicts that directly impact our physical facilities or ability to recruit and retain students and employees could adversely affect our ability to deliver our programs of study to our students and, thereby, impair our ability to achieve our financial and operational goals. Furthermore, violent acts and threats of future attacks could adversely affect the U.S. and world economies. Finally, future terrorist acts could cause the United States to enter into a wider armed conflict that could further impact our operations and result in prospective students, as well as our current students and employees, entering military service. These factors could cause significant declines in the number of students who attend our campuses and have a material adverse effect on our results of operations.

Natural disasters and other acts of God could have an adverse effect on our operations. Hurricanes, earthquakes, floods, tornados and other natural disasters and acts of God could disrupt our operations. Natural disasters and other acts of God that directly impact our physical facilities or ability to recruit and retain students and employees could adversely affect our ability to deliver our programs of study to our students and, thereby, impair our ability to achieve our financial and operational goals. Furthermore, natural disasters could adversely affect the economy and demographics of the affected region, which could cause significant declines in the number of students who attend our campuses in that region and have a material adverse effect on our results of operations.

Anti-takeover provisions in our charter documents and under Delaware law, as well as required approvals by the ED, the ACs and most of the SAs, could make an acquisition of us more difficult. Certain provisions of Delaware law, our Restated Certificate of Incorporation and our By-Laws could have the effect of making it more difficult for a third party to acquire, or discouraging a third party from attempting to acquire, control of us. Those provisions could:

• limit the price that certain investors might be willing to pay in the future for shares of our common stock;

• discourage or prevent certain types of transactions involving an actual or threatened change in control of us (including unsolicited takeover attempts), even though such a transaction may offer our stockholders the opportunity to sell their stock at a price above the prevailing market price;

• make it more difficult for stockholders to take certain corporate actions; and

• have the effect of delaying or preventing a change in control of us.

Certain of those provisions authorize us to:

• issue “blank check” preferred stock;

• divide our Board of Directors into three classes expiring in rotation;

• require advance notice for stockholder proposals and nominations;

• prohibit stockholders from calling a special meeting; and

• prohibit stockholder action by written consent.

In addition, the ED, the ACs and most of the SAs have requirements pertaining to the change in ownership and/or control (collectively “change in control”) of institutions, but these requirements do not uniformly define what constitutes a change in control and are subject to varying interpretations as to whether a particular transaction constitutes a change in control. If we or any of our campuses experience a change in control under the standards of the ED, the ACs or the SAs, we or the affected campuses must seek the approval of the relevant regulatory agencies. Transactions or events that constitute a change in control for one or more of our regulatory agencies include:

• the acquisition of a school from another entity;

• significant acquisitions or dispositions of our common stock; and

• significant changes to the composition of our, or any campus, Board of Directors.

Some of these transactions or events may be beyond our control. Our failure to obtain, or a delay in obtaining, a required approval of any change in control from the relevant regulatory agencies could impair our ability or the ability of the affected campuses to participate in Title IV Programs, or could require us to suspend our recruitment of students in one or more states until we receive the required approval. A material adverse effect on our financial condition, results of operations and cash flows would result if we had a change in control and a material number of our campuses:

• failed to timely obtain the approvals of the SAs required prior to or following a change in control;

• failed to timely regain approval by the ACs for inclusion in their institution’s grant of accreditation or have their inclusion in that accreditation temporarily continued or reinstated by the ACs;

• failed to timely regain eligibility to participate in Title IV Programs from the ED or receive temporary certification to continue to participate in Title IV Programs pending further review by the ED; or

• were subjected by the ED to restrictions that severely limited for a substantial period of time the number of new additional locations and/or new programs of study that are eligible to participate in Title IV Programs.

The fact that a change in control would require approval of the relevant regulatory agencies, and the uncertainty and potential delay related to obtaining such approvals, could have the effect of making it more difficult for a third party to acquire, or discouraging a third party from attempting to acquire, control of us.

-39-

If we are unable to conclude successfully litigation against us, our business, financial condition and results of operations could be adversely affected. We are subject to various lawsuits, investigations and claims, covering a wide range of matters, including, but not limited to, alleged violations of federal and state laws, claims involving students or graduates and routine employment matters. We cannot predict the ultimate outcome of these matters and have incurred, and expect to incur, significant defense costs and other expenses in connection with these matters. Those costs and expenses have had, and could continue to have, a material adverse effect on our business, financial condition, results of operations and cash flows and the market price of our common stock. These matters have and will continue to cause substantial diversion of our management’s attention and resources from our ongoing business operations, which could have a material adverse effect on our business, financial condition, results of operations and cash flows. We may be required to pay substantial damages or settlement costs in excess of our insurance coverage related to these matters, or may be required to pay substantial fines or penalties, any of which could have a further material adverse effect on our business, financial condition, results of operations and cash flows. An adverse outcome in any of these matters could also materially and adversely affect our authorizations, licenses, accreditations and eligibility to participate in Title IV programs. See “Legal Proceedings.”

The personal information that we collect may be vulnerable to breach, theft or loss that could adversely affect our reputation and operations. Possession and use of personal information in our operations subjects us to risks and costs that could harm our business. In the ordinary course of our business, we collect, use and retain large amounts of personal information regarding prospective students, students, their families and employees. Some of this personal information is held and managed by certain of our vendors. Although we use security and business controls to limit access and use of personal information, a third party may be able to circumvent those security and business controls, which could result in a breach of student or employee privacy. In addition, errors in the storage, use or transmission of personal information could result in a breach of student or employee privacy. Possession and use of personal information in our operations also subjects us to legislative and regulatory burdens that could require notification of data breaches and restrict our use of personal information. We cannot assure you that a breach, loss or theft of personal information will not occur. A major breach, theft or loss of personal information regarding our students and their families or our employees that is held by us or our vendors could subject us to costly claims or litigation, have a material adverse effect on our reputation and results of operations and result in further regulation and oversight by federal and state authorities and increased costs of compliance. Potential new federal or state laws and regulations also may increase our costs of compliance or limit our ability to use personal information to recruit students.

Security breaches or system interruptions or delays involving 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. The performance and reliability of our computer systems are critical to our information management, reputation and ability to attract and retain students. Any system error or failure, or a sudden and significant increase in traffic, could disrupt the provision of education to students attending our campuses. We cannot assure you that we will be able to expand the infrastructure of our computer systems on a timely basis sufficient to meet demand. Our computer systems and operations could be vulnerable to interruption or malfunction due to events beyond our control, including natural disasters and telecommunications failures. Any interruption to our computer systems could have a material adverse effect on our operations and ability to attract and retain students. These factors could affect the number of students who attend our campuses and have a material adverse effect on our results of operations.

Our computer systems may be vulnerable to unauthorized access, computer hackers, computer viruses and other security problems. A user who circumvents security measures could misappropriate proprietary information or cause interruptions or malfunctions in operations. As a result, we may be required to expend significant resources to protect against the threat of those security breaches or to alleviate problems caused by those breaches. These factors could affect the number of students who attend our campuses and have a material adverse effect on our results of operations.

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. Our success depends in part on our ability to protect our proprietary rights. We rely on a combination of copyrights, trademarks, service marks, trade secrets, domain names and agreements to protect our proprietary rights. We rely on service mark and trademark protection in the United States to protect our rights to distinctive marks associated with our services. We rely on agreements under which we obtain rights to use the “ITT” and related marks and course content developed by our faculty, our other employees and third party content experts. We cannot assure you that those measures will be adequate, that we have secured, or will be able to secure, appropriate protections for all of our proprietary rights, or that third parties will not infringe upon or violate our proprietary rights. Despite our efforts to protect those rights, unauthorized third parties may attempt to duplicate or copy the proprietary aspects of our names, curricula and other content. Our management’s attention may be diverted by those attempts and we may need to use funds in litigation to protect our proprietary rights against any infringement or violation.

We may encounter disputes from time to time over rights and obligations concerning intellectual property, and we may not prevail in those disputes. In certain instances, we may not have obtained sufficient rights in the content or mode of delivery of a course or a program of study. Third parties may raise a claim against us alleging an infringement or violation of the intellectual property of that third party. Some third party intellectual property rights, such as certain patent rights, may be extremely broad,

-40-

and it may not be possible for us to conduct our operations in such a way as to avoid infringing upon those intellectual property rights. Any such intellectual property claim could subject us to costly litigation, regardless of whether the claim has merit. Our insurance coverage may not cover potential claims of this type adequately or at all, and we may be required to alter the content or mode of delivery of our courses or programs of study, or pay significant monetary damages, any of which could have a material adverse effect on our results of operations.

Risk Related to Our Common Stock

The trading price of our common stock may fluctuate substantially in the future. The trading price of our common stock has fluctuated, and may continue to fluctuate, substantially as a result of a number of factors, some of which are not within our control. Those factors include, among others:

• our ability to meet or exceed our own forecasts or expectations of analysts or investors;

• quarterly variations in our operating results;

• changes in federal and state laws and regulations and accreditation standards, or changes in the way that laws, regulations and accreditation standards are interpreted and applied;

• the initiation, pendency or outcome of litigation, regulatory reviews and investigations, and any adverse publicity related thereto;

• the effects of financial reporting matters, such as material weaknesses in internal control over financial reporting, restatements and the Consolidation;

• actions by the NYSE, or uncertainty related to possible actions by the NYSE, related to the continued listing of our common stock;

• negative media reports with respect to us and/or our industry;

• changes in our own forecasts or earnings estimates by analysts;

• price and volume fluctuations in the overall stock market, which have affected the market prices of many companies in the proprietary, postsecondary education industry in recent periods;

• the amount and availability of financing for our students;

• the short interest in our stock at any point in time;

• the loss of key personnel; and

• general economic conditions.

Those factors could adversely affect the trading price of our common stock and could prevent an investor from selling shares of our common stock at or above the price at which those shares were purchased.

Item 1B. Unresolved Staff Comments.

Not applicable.

Item 2. Properties.

As of December 31, 2013, we:

• leased 130 facilities used by our campuses and learning sites;

• owned 42 facilities used by our campuses; and

• leased one facility that is intended to be used by a new campus in the future.

Thirteen of the owned facilities and three of the leased facilities are used by DWC. One of the leased facilities is used by the CPD. We also own our headquarters building in Carmel, Indiana, which represents approximately 43,000 square feet of office space. Our facilities are located in 39 states.

Our obligations under the Amended Credit Agreement and for certain related bank products are secured by mortgages on 30 separate parcels of land owned by us, including all of the improvements thereto and fixtures thereon (the “Mortgaged Property”). These parcels of real property consist of all of the real property owned by us, other than the 13 parcels owned by us that are used by DWC. See “Management’s Discussion and Analysis of Financial Condition and Results of the Operations – Financial Condition, Liquidity and Capital Resources – Financing” and Note 13 – Debt of the Notes to Consolidated Financial Statements, for a further discussion of the Amended Credit Agreement.

We generally locate our campuses in suburban areas near major population centers. We generally house our campus facilities in modern, air conditioned buildings, which include classrooms, laboratories, student break areas and administrative offices. Our campuses typically have accessible parking facilities and are generally near a major highway. The facilities at our locations range in size from approximately 10,000 to 58,000 square feet. The initial lease terms of our leased facilities range from two to 15 years. The average remaining lease term of our leased facilities is approximately three years. If desirable or necessary, a campus may be relocated to a new facility reasonably near the existing facility at the end of the lease term.

-41-

Item 3. Legal Proceedings.

We are subject to various claims and contingencies in the ordinary course of our business, including those related to litigation, government investigations, business transactions, employee-related matters and taxes, among others. We cannot assure you of the ultimate outcome of any litigation or investigations involving us. Any litigation alleging violations of education or consumer protection laws and/or regulations, misrepresentation, fraud or deceptive practices may also subject our affected campuses to additional regulatory scrutiny.

On December 22, 2008, we were served with a qui tam action that was filed on July 3, 2007 in the United States District Court for the Southern District of Indiana by a former employee (“relator”) on behalf of herself and the federal government under the following caption: United States of America ex rel. Debra Leveski v. ITT Educational Services, Inc. (the “Leveski Litigation”). We were served with the Leveski Litigation after the U.S. Department of Justice declined to intervene in the litigation. On June 3, 2008, the relator filed an amended complaint in the Leveski Litigation. On September 23, 2009, the court dismissed the Leveski Litigation without prejudice and gave the relator an opportunity to replead her complaint. On October 8, 2009, the relator filed a second amended complaint. In the second amended complaint, the relator alleges that we violated the False Claims Act, 31 U.S.C. § 3729, et seq., and the HEA by compensating our sales representatives and financial aid administrators with commissions, bonuses or other incentive payments based directly or indirectly on success in securing enrollments or federal financial aid. The relator alleges that all of our revenue derived from the federal student financial aid programs from July 3, 2001 through July 3, 2007 was generated as a result of our violating the HEA. The relator seeks various forms of recovery on behalf of herself and the federal government, including:

• treble the amount of unspecified funds paid to us for federal student grants;

• treble the amount of unspecified default payments, special allowance payments and interest received by lenders with respect to federal student loans received by our students;

• all civil penalties allowed by law; and

• attorney’s fees and costs.

A qui tam action is a civil lawsuit brought by a qui tam relator on behalf of the federal or state government for an alleged submission to the government of a false claim for payment. A qui tam action is always filed under seal and remains under seal, until the government decides whether to intervene in the litigation. Whenever a relator files a qui tam action, the government typically initiates an investigation in order to determine whether to intervene in the litigation. If the government intervenes, it has primary control over the litigation. If the government declines to intervene, the relator may pursue the litigation on behalf of the government. If the government or the relator is successful in the litigation, the relator receives a portion of the government’s recovery.

On August 8, 2011, the district court granted our motion to dismiss all of the relator’s claims in the Leveski Litigation for lack of subject-matter jurisdiction and issued a judgment for us. On February 16, 2012, the relator in the Leveski Litigation filed a Notice of Appeal with the 7^th Circuit Court of Appeals regarding the final judgment entered by the district court dismissing all claims against us. On March 26, 2012, the district court in the Leveski Litigation awarded us approximately $0.4 million in sanctions against the relator’s attorneys for filing a frivolous lawsuit. Relator’s attorneys also appealed this award to the 7^th Circuit Court of Appeals. On July 8, 2013, the 7^th Circuit Court of Appeals reversed the district court’s dismissal of the Leveski Litigation for lack of subject-matter jurisdiction and the award of sanctions against relator’s attorneys. In addition, the 7^th Circuit Court of Appeals remanded the Leveski Litigation back to the district court for further proceedings. We have defended, and intend to continue to defend, ourselves vigorously against the allegations made in the complaint.

On March 11, 2013, a complaint in a securities class action lawsuit was filed against us and two of our current executive officers in the United States District Court for the Southern District of New York under the caption: William Koetsch, Individually and on Behalf of All Others Similarly Situated v. ITT Educational Services, Inc., et al. (the “Koetsch Litigation”). On April 17, 2013, a second complaint in a securities class action lawsuit was filed against us and two of our current executive officers in the United States District Court for the Southern District of New York under the caption: Massachusetts Laborers’ Annuity Fund, Individually and on Behalf of All Others Similarly Situated v. ITT Educational Services, Inc., et al. (the “MLAF Litigation”). On July 25, 2013, the court consolidated the Koetsch Litigation and MLAF Litigation under the caption: In re ITT Educational Services, Inc. Securities Litigation (the “Securities Litigation”), and named the Plumbers and Pipefitters National Pension Fund and Metropolitan Water Reclamation District Retirement Fund as the lead plaintiffs. On October 7, 2013, an amended complaint was filed in the Securities Litigation, and on January 15, 2014, a second amended complaint was filed in the Securities Litigation. The second amended complaint alleges, among other things, that the defendants violated Sections 10(b) and 20(a) of the Exchange Act and Rule 10b-5 promulgated thereunder by:

• our failure to properly account for the 2007 RSA, 2009 RSA and PEAKS Program;

• employing devices, schemes and artifices to defraud;

• making untrue statements of material facts, or omitting material facts necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading;

• making the above statements intentionally or with reckless disregard for the truth;

• engaging in acts, practices, and a course of business that operated as a fraud or deceit upon lead plaintiffs and others similarly situated in connection with their purchases of our common stock;

-42-

• deceiving the investing public, including lead plaintiffs and the purported class, regarding, among other things, our artificially inflated statements of financial strength and understated liabilities; and

• causing our common stock to trade at artificially inflated prices and causing the plaintiff and other putative class members to purchase our common stock at inflated prices.

The putative class period in this action is from April 24, 2008 through February 25, 2013. The plaintiffs seek, among other things, the designation of this action as a class action, an award of unspecified compensatory damages, interest, costs and expenses, including counsel fees and expert fees, and such equitable/injunctive and other relief as the court deems appropriate. On July 22, 2014, the district court denied most of our motion to dismiss all of the plaintiffs’ claims for failure to state a claim for which relief can be granted. On August 5, 2014, we filed our answer to the second amended complaint denying all of the plaintiffs’ claims. All of the defendants have defended, and intend to continue to defend, themselves vigorously against the allegations made in the second amended complaint.

On September 30, 2014, a complaint in a securities class action lawsuit was filed against us and two of our current executive officers in the United States District Court for the Southern District of Indiana under the caption: David Banes, Individually and on Behalf of All Others Similarly Situated v. Kevin M. Modany, et al. (the “Banes Litigation”). The complaint alleges, among other things, that the defendants violated Sections 10(b) and 20(a) of the Exchange Act and Rule 10b-5 promulgated thereunder by:

• misleading investors regarding the integrity of our financial reporting, including the reporting of the PEAKS Trust;

• knowingly or recklessly making materially false and/or misleading statements and/or failing to disclose material adverse facts about our business operations and prospects, including that:

• our financial statements contained errors related to the accounting of the PEAKS Trust and the PEAKS Program; and

• we lacked adequate internal controls over financial reporting;

• knowingly or recklessly engaging in acts, transactions, practices, and courses of business that operated as a fraud or deceit upon the plaintiff and the purported class;

• employing devices, schemes and artifices to defraud in connection with the purchase and sale of our common stock;

• deceiving the investing public, including the plaintiff and the purported class; and

• artificially inflating and maintaining the market price of our common stock and causing the plaintiff and other putative class members to purchase our common stock at artificially inflated prices.

The putative class period in this action is from April 26, 2013 through September 19, 2014. The plaintiffs seek, among other things, the designation of this action as a class action, an award of unspecified damages, interest, costs and expenses, including counsel fees and expert fees, and such other relief as the court deems proper. All of the defendants intend to defend themselves vigorously against the allegations made in the complaint.

On October 3, 2014, a complaint in a securities class action lawsuit was filed against us and two of our current executive officers in the United States District Court for the Southern District of Indiana under the caption: Babulal Tarapara, Individually and on Behalf of All Others Similarly Situated v. ITT Educational Services, Inc., et al. (the “Tarapara Litigation”). The complaint alleges, among other things, that the defendants violated Sections 10(b) and 20(a) of the Exchange Act and Rule 10b-5 promulgated thereunder by knowingly or recklessly making false and/or misleading statements and failing to disclose material adverse facts about our business, operations, prospects and financial results. In particular, the complaint alleges that:

• we failed to consolidate the PEAKS Trust in our consolidated financial statements;

• our consolidated financial statements contained errors related to the accounting of the PEAKS Trust and PEAKS Program;

• we improperly accounted for our guarantee obligations under the PEAKS Guarantee;

• our financial results were overstated;

• we lacked adequate internal and financial controls;

• our consolidated financial statements were materially false and misleading at all relevant times;

• we artificially inflated and maintained the market price of our common stock, causing the plaintiff and other putative class members to purchase our common stock at artificially inflated prices;

• we deceived the investing public, including the plaintiff and the purported class; and

• we employed devices, schemes and artifices to defraud in connection with the purchase and sale of our common stock.

The putative class period in this action is from February 26, 2013 through September 18, 2014. The plaintiffs seek, among other things:

• the designation of this action as a class action;

-43-

• an award of unspecified compensatory damages, including interest;

• an award of reasonable costs and expenses, including counsel fees and expert fees; and

• such other relief as the court deems proper.

All of the defendants intend to defend themselves vigorously against the allegations made in the complaint.

On October 9, 2014, a complaint in a securities class action lawsuit was filed against us and two of our current executive officers in the United States District Court for the Southern District of Indiana under the caption: Kumud Jindal, Individually and on Behalf of All Others Similarly Situated v. Kevin M. Modany, et al. (the “Jindal Litigation”). The complaint alleges, among other things, that the defendants violated Sections 10(b) and 20(a) of the Exchange Act and Rule 10b-5 promulgated thereunder by knowingly or recklessly making false and/or misleading statements and failing to disclose material adverse facts about our business, operations, prospects and financial results. In particular, the complaint alleges that:

• our financial statements contained errors related to the accounting of the PEAKS Trust and PEAKS Program;

• we lacked adequate internal controls over financial reporting;

• our financial statements were materially false and misleading at all relevant times;

• we engaged in acts, transactions, practices and courses of business which operated as a fraud and deceit upon plaintiff and the purported class;

• we employed devices, schemes and artifices to defraud in connection with the purchase and sale of our common stock; and

• we artificially inflated and maintained the market price of our common stock, causing the plaintiff and other putative class members to purchase our common stock at artificially inflated prices.

The putative class period in this action is from April 26, 2013 through September 19, 2014. The plaintiffs seek, among other things, the designation of this action as a class action, an award of unspecified damages, interest, attorneys’ fees, expert fees and other costs, and such other relief as the court deems proper. All of the defendants intend to defend themselves vigorously against the allegations made in the complaint.

On May 8, 2013, a complaint in a shareholder derivative lawsuit was filed against two of our current executive officers and all of our current Directors in the United States District Court for the Southern District of New York under the following caption: Sasha Wilfred, Derivatively on Behalf of Nominal Defendant ITT Educational Services, Inc. v. Kevin M. Modany, et al. (the “Wilfred Litigation”). The complaint alleges, among other things, that from April 24, 2008 through February 25, 2013, the defendants violated state law, including breaching their fiduciary duties to us, grossly mismanaging us, wasting our corporate assets and being unjustly enriched, by:

• causing or allowing us to disseminate to our shareholders materially misleading and inaccurate information relating to a series of risk-sharing agreements through SEC filings, press releases, conference calls, and other public statements and disclosures;

• willfully ignoring obvious and pervasive problems with our internal controls and practices and procedures, and failing to make a good faith effort to correct these problems or prevent their recurrence;

• violating and breaching fiduciary duties of care, loyalty, reasonable inquiry, oversight, good faith and supervision;

• causing or allowing us to misrepresent material facts regarding our financial position and business prospects; and

• abandoning their responsibilities and duties with regard to prudently managing our businesses in a manner imposed upon them by law.

The complaint seeks:

• unspecified damages;

• restitution;

• disgorgement of all profits, benefits and other compensation obtained by the individual defendants;

• an order directing us to take all necessary actions to reform and improve our corporate governance and internal procedures; and

• costs and disbursements, including attorneys’, accountants’ and experts’ fees, costs and expenses.

On August 6, 2013, the parties agreed to stay the Wilfred Litigation, until the Securities Litigation was dismissed with prejudice or the defendants filed an answer in the Securities Litigation. On September 8, 2014, the district court approved the parties’ agreement for an additional stay of the Wilfred Litigation, until the earlier of:

• a final disposition of the Securities Litigation; or

• 30 days after written notice terminating the stay has been provided by any of the parties in the Wilfred Litigation to all other parties.

On May 27, 2014, a complaint in a shareholder derivative lawsuit was filed against two of our current executive officers, all of our current Directors and one former Director in the United States District Court for the District of Delaware under the following caption: Janice Nottenkamper, Derivatively on Behalf of Nominal Defendant ITT Educational Services, Inc. v. Kevin M. Modany, et al. (the “Nottenkamper Litigation”). The complaint alleges, among other things, that from 2008 to May 27, 2014, the defendants engaged in illicit conduct, made false and misleading statements, concealed the truth and failed to disclose material information concerning:

• our exposure under guarantees entered into with third-party lenders to obtain financing for our students;

• increases in our bad debt expense caused by increases in student loan defaults;

• our reserves associated with our obligations under third-party private education loan programs and internal student financing;

• the unwillingness of third-party lenders to provide private education loans to our students; and

• our pushing students into high-cost private loans that were likely to default.

As a result of this conduct, the complaint alleges that the defendants breached their fiduciary duties to us, were unjustly enriched, abused their control of us and grossly mismanaged us by:

• causing or allowing us to disseminate to our shareholders materially misleading and inaccurate information relating to a series of risk-sharing agreements through SEC filings, press releases, conference calls, and other public statements and disclosures;

• willfully ignoring obvious and pervasive problems with our internal controls and practices and procedures, and failing to make a good faith effort to correct these problems or prevent their recurrence;

• violating and breaching fiduciary duties of care, loyalty, good faith, diligence and candor;

• causing or allowing us to misrepresent material facts regarding our financial position and business prospects; and

• abandoning and abdicating their responsibilities and duties with regard to prudently managing our businesses in a manner imposed upon them by law.

The complaint seeks:

• unspecified damages;

-44-

• restitution;

• disgorgement of all profits, benefits and other compensation obtained by the individual defendants;

• an order directing us to take all necessary actions to reform and improve our corporate governance and internal procedures; and

• costs and disbursements, including attorneys’, accountants’ and experts’ fees, costs and expenses.

Although the Wilfred Litigation and Nottenkamper Litigation are each brought nominally on behalf of us, we expect to incur defense costs and other expenses in connection with those actions.

The current officers named in the Securities Litigation, Banes Litigation, Tarapara Litigation, Jindal Litigation, Wilfred Litigation and Nottenkamper Litigation include Daniel M. Fitzpatrick and Kevin M. Modany.

Certain of our current and former officers and Directors are or may become a party in the actions described above and/or are or may become subject to government investigations. Our By-laws and Restated Certificate of Incorporation obligate us to indemnify our officers and Directors to the fullest extent permitted by Delaware law, provided that their conduct complied with certain requirements. We are obligated to advance defense costs to our officers and Directors, subject to the individual’s obligation to repay such amount if it is ultimately determined that the individual was not entitled to indemnification. In addition, our indemnity obligation can, under certain circumstances, include indemnifiable judgments, penalties, fines and amounts paid in settlement in connection with those actions and investigations.

On May 18, 2012, we received the Original CID from the CFPB. In September 2013, the CFPB withdrew the Original CID and we received the New CID. Both the Original CID and the New CID provided that the purpose of the CFPB’s investigation was, in part, “to determine whether for-profit post-secondary companies, student loan origination and servicing providers, or other unnamed persons have engaged or are engaging in unlawful acts or practices relating to the advertising, marketing, or origination of private student loans.” Both the Original CID and the New CID contained broad requests for oral testimony, production of documents and written reports related to private education loans made to our students, internal financing provided to our students and certain other aspects of our business. We provided documentation and other information to the CFPB, while preserving our rights to object to its inquiry.

On February 26, 2014, a complaint in the CFPB Litigation was filed against us in the United States District Court for the Southern District of Indiana. The complaint alleges, among other things, that we violated:

• Section 1036(a)(1) of the CFPA, 12 U.S.C., §5536(a)(1), which prohibits unfair, deceptive and abusive acts and practices, from July 21, 2011 through December 2011, by:

• subjecting consumers to undue influence or coercing them into taking out private education loans through a variety of unfair acts and practices designed to interfere with the consumers’ ability to make informed, uncoerced choices;

• taking unreasonable advantage of consumers’ inability to protect their interest in selecting or using private education loans; and

• taking unreasonable advantage of consumers’ reasonable reliance on us to act in the consumers’ interests; and

• the Truth in Lending Act, 15 U.S.C. §§ 1601 et seq., and Regulation Z thereunder, 12 C.F.R. Part 1026, which require certain disclosures to be made in writing to consumers in connection with the extension of consumer credit, since March 2009, by failing to disclose a discount that constituted a finance charge.

On April 28, 2014, we filed a motion to dismiss the CFPB Litigation for, among other reasons, lack of jurisdiction and failure to state a claim upon which relief can be granted. We have defended, and intend to continue to defend, ourselves vigorously against the allegations made in the complaint.

On February 27, 2014, the New Mexico Attorney General filed a complaint in the New Mexico Litigation against us in the District Court of New Mexico under the following caption: State of New Mexico, ex rel. Gary K King, Attorney General v. ITT Educational Services, Inc., et al. On April 4, 2014, we removed the New Mexico Litigation to the U.S. District Court for the District of New Mexico. The complaint alleges, among other things, that we engaged in a pattern and practice of exploiting New Mexico consumers by using deceptive, unfair, unconscionable and unlawful business practices in the marketing, sale, provision and financing of education goods and services in violation of New Mexico’s Unfair Practices Act. In particular, the complaint contains allegations that:

• we misrepresented matters related to our nursing education program, including, without limitation, its programmatic accreditation status, the transferability of credits earned in the program and the curriculum of the program;

• we misrepresented the terms of the financial aid available to students and the cost of our programs;

• we engaged in unfair or deceptive trade practices;

• we failed to issue refunds; and

• our form enrollment agreement contained unenforceable and unconscionable provisions.

-45-

The complaint seeks:

• an order declaring portions of our enrollment agreement illusory, unconscionable and unenforceable;

• preliminary and permanent injunctive relief;

• disgorgement of unjust enrichment amounts;

• unspecified civil penalty amounts;

• restitution; and

• reasonable costs, including investigative costs.

We have defended, and intend to continue to defend, ourselves vigorously against the allegations made in the complaint.

On December 17, 2013, a complaint was filed against us in a purported class action in the Superior Court of the State of California for the County of Los Angeles under the following caption: La Sondra Gallien, an individual, James Rayonez, an individual, Giovanni Chilin, an individual, on behalf of themselves and on behalf of all persons similarly situated v. ITT Educational Services, Inc., et al. (the “Gallien Litigation”). The plaintiffs filed an amended complaint on February 13, 2014. The amended complaint alleges, among other things, that under California law, we:

• failed to pay wages owed;

• failed to pay overtime compensation;

• failed to provide meal and rest periods;

• failed to provide itemized employee wage statements;

• engaged in unlawful business practices; and

• are liable for civil penalties under the California Private Attorney General Act.

The purported class includes recruiting representatives employed by us during the period of December 17, 2009 through December 17, 2013. The amended complaint seeks:

• compensatory damages, including lost wages and other losses;

• general damages;

• pay for missed meal and rest periods;

• restitution;

• liquidated damages;

• statutory penalties;

• interest;

• attorneys’ fees, cost and expenses;

• civil and statutory penalties;

• injunctive relief; and

• such other and further relief as the court may deem equitable and appropriate.

We have defended, and intend to continue to defend, ourselves vigorously against the allegations made in the amended complaint.

There can be no assurance that the ultimate outcome of the Leveski Litigation, Securities Litigation, Banes Litigation, Tarapara Litigation, Jindal Litigation, Wilfred Litigation, Nottenkamper Litigation, CFPB Litigation, New Mexico Litigation, Gallien Litigation or other actions (including other actions under federal or state securities laws) will not have a material adverse effect on our financial condition, results of operations or cash flows.

On October 30, 2012, we received a CID from the MAG. The MAG’s CID provides that the MAG is investigating allegations that we may have violated Massachusetts General Laws, Chapter 93A, Section 2(a) by “engaging in unfair or deceptive practices in connection with marketing and advertising job placement and student outcomes, the recruitment of students, and the financing of education.” The MAG’s CID contains broad requests for production of documents related to our students in Massachusetts, including the financial aid available to those students, our recruitment of those students, the career services that we offer to those students, our marketing and advertising, the retention and graduation rates of those students and many other aspects of our business. We are cooperating with the MAG in its investigation, and we have provided documentation, communications and other information to the MAG in response to the CID. We believe that our acts and practices relating to our students in Massachusetts are lawful. There can be no assurance, however, that the ultimate outcome of the MAG investigation will not have a material adverse effect on our financial condition, results of operations and/or cash flows.

In January, February, April and May 2014, we received subpoenas and/or CIDs from the Attorneys General of Arkansas, Arizona, Colorado, Connecticut, Hawaii, Idaho, Iowa, Kentucky, Missouri, Nebraska, North Carolina, Oregon, Pennsylvania, Tennessee and Washington under the authority of each state’s consumer protection statutes. The Attorney General of the Commonwealth of Kentucky has informed us that it will serve as the point of contact for the multistate group to respond to questions relating to the subpoenas and CIDs. The subpoenas and CIDs contain broad requests for information and the production of documents related to our students and practices, including marketing and advertising, recruitment, financial aid, academic advising, career services, admissions, programs, licensure exam pass rates, accreditation, student retention, graduation rates and job placement rates, as well as many other aspects of our business. We believe that several other companies in the proprietary postsecondary education sector have received similar subpoenas and CIDs. We are cooperating with the Attorneys General of the states involved. There can be no assurance, however, that the ultimate outcome of the state Attorneys General investigation will not have a material adverse effect on our financial condition, results of operations and/or cash flows.

-46-

On February 8, 2013, we received the first of many subpoenas from the SEC. In a letter accompanying each of the subpoenas, the SEC states that it is conducting an investigation of us. The SEC’s subpoenas requested the production of documents and communications that, among other things, relate to our actions and accounting associated with:

• agreements that we entered into with the 2009 Entity to create the 2009 Loan Program, including, without limitation, the 2009 RSA;

• agreements that we entered into to create the PEAKS Program;

• certain accounting-related documents associated with the 2009 Loan Program, the PEAKS Program and internal student financing; and

• our board of directors-related materials associated with the 2009 Loan Program, the PEAKS Program and internal student financing.

We have provided the information requested, including testimony of senior employees. On August 7, 2014, we received a “Wells Notice” from the Staff of the SEC notifying us that the Staff had made a preliminary determination to recommend that the SEC file an enforcement action against us. According to the Staff, the enforcement action would allege violations of Sections 10(b), 13(a) and 13(b)(2) of the Exchange Act and Rules 10b-5, 12b-20, 13a-1, 13a-11, 13a-13 and 13a-15 under the Exchange Act. The proposed action relates primarily to certain disclosures and accounting surrounding the two loan programs noted above. The SEC’s notice said that the Staff’s recommendation may:

• involve a civil injunctive action, public administrative proceeding and/or cease-and-desist proceeding against us; and

• seek remedies that include an injunction, a cease-and-desist order and monetary relief, including civil monetary penalties.

A Wells Notice is neither a formal allegation nor a finding of wrongdoing. Instead, it is a preliminary determination by the Staff to recommend that the SEC file a civil enforcement action or administrative proceeding against the recipient. Under the SEC’s procedures, a recipient of a Wells Notice has an opportunity to respond in the form of a Wells submission that seeks to persuade the SEC that such an action should not be brought. Accordingly, we made a submission to the Staff in response to the Wells Notice setting forth why the factual record does not support the enforcement action recommended by the Staff and that any perceived shortcomings were made in good faith. Although we intend to defend ourselves vigorously should the SEC authorize any legal action that does not comport with our view of the facts, we cannot predict the outcome of any legal action or whether the matters will result in any settlement. We cannot assure you that the ultimate outcome of the SEC investigation, any legal action by the SEC or any settlement will not have a material adverse effect on our financial condition, results of operations and/or cash flows.

Item 4. Mine Safety Disclosures.

Not Applicable.

PART II

Item 5. Market For Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

Our common stock is listed on the NYSE under the “ESI” trading symbol. The prices set forth below are the high and low sale prices of our common stock on the NYSE during the periods indicated.

	2013				2012
Fiscal Quarter Ended	High		Low		High		Low
March 31	$	19.49	$	11.69	$	77.00	$	52.80
June 30	$	28.52	$	11.95	$	70.92	$	53.60
September 30	$	31.85	$	23.82	$	65.85	$	30.37
December 31	$	42.80	$	27.97	$	33.17	$	16.37

There were 83 holders of record of our common stock on September 30, 2014.

We did not pay a cash dividend in 2013 or 2012. We do not anticipate paying any cash dividends on our common stock in the foreseeable future. The declaration and payment of dividends on our common stock are subject to the discretion of our Board

-47-

of Directors and compliance with applicable law. In addition, our credit agreement provides for certain limitations on the payment of cash dividends on our common stock. Our decision to pay dividends in the future will depend on general business conditions, the effect of such payment on our financial condition, the restrictions under our credit agreement and other factors our Board of Directors may in the future consider to be relevant.

We did not sell any of our securities during the three months ended December 31, 2013 that were not registered under the Securities Act. In January 2014, we credited 2,233 treasury shares of our common stock to the deferred share accounts of each of three non-employee directors under the ESI Non-Employee Directors Deferred Compensation Plan (the “Directors Deferred Compensation Plan”) in payment of their annual retainer for 2014. These shares of our common stock will be issued upon the termination of the non-employee director’s service as a non-employee director for any reason, including retirement or death. In January 2014, we also issued 1,116 treasury shares of our common stock to one non-employee director under the Directors Deferred Compensation Plan in payment of a portion of his annual retainer for 2014. The transactions described in this paragraph are exempt from the registration requirements of the Securities Act pursuant to Section 4(2) thereof.

In the three months ended December 31, 2013, we did not repurchase any shares of our common stock. Our Board of Directors has authorized us to repurchase shares of our common stock in the open market or through privately negotiated transactions in accordance with Rule 10b-18 of the Exchange Act (the “Repurchase Program”). The shares that remained available for repurchase under the Repurchase Program were 7,771,025 as of December 31, 2013. Unless earlier terminated by our Board of Directors, the Repurchase Program will expire when we repurchase all shares authorized for repurchase thereunder.

The performance graph set forth below compares the cumulative total shareholder return on our common stock with the S&P 500 Index, a Peer Issuer Group Index and a former peer issuer index for the period from December 31, 2008 through December 31, 2013. The peer issuer group consists of the following companies selected on the basis of the similar nature of their business: American Public Education, Inc., Apollo Education Group, Inc., Bridgepoint Education, Inc., Capella Education Company, Career Education Corp., Corinthian Colleges, Inc., DeVry Education Group, Inc., Education Management Corporation, Grand Canyon Education, Inc., K12 Inc., Lincoln Educational Services Corporation, Strayer Education, Inc. and Universal Technical Institute, Inc. (the “Peer Issuer Group”). We believe that, including us, the Peer Issuer Group represents a significant portion of the market value of publicly traded companies whose primary business is postsecondary education. The Peer Issuer Group differs from the former peer issuer group in that K12 Inc. was not included in the former peer issuer group.

Cumulative Total Return

(Based on $100 invested on December 31, 2008 and assumes

the reinvestment of all dividends)

	12/31/08		12/31/09		12/31/10		12/31/11		12/31/12		12/31/13
ITT Educational Services, Inc.		100.00		101.03		67.06		59.90		18.22		35.35
Peer Issuer Group Index		100.00		88.65		69.98		69.31		35.06		50.60
Former Peer Issuer Group Index		100.00		88.29		68.49		68.92		33.35		49.25
S&P 500 Index		100.00		126.46		145.51		148.59		172.37		228.19

The preceding stock price performance graph and related information shall not be deemed “soliciting material” or to be “filed” with the SEC, nor shall such information be incorporated by reference into any future filing under the Securities Act or the Exchange Act, except to the extent that we specifically incorporate it by reference into such filing.

-48-

Item 6. Selected Financial Data.

The following selected financial data are qualified by reference to and should be read with our Consolidated Financial Statements and Notes to Consolidated Financial Statements and other financial data included elsewhere in this report. See also “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” for additional discussion of the selected financial data and the impact of the Consolidation.

	Year Ended December 31,
	2013 (a)			2012 (b)			2011 (b)		2010 (b)		2009 (b)
	(Dollars in thousands, except per share data)
Statement of Income Data:
Revenue	$	1,072,311		$	1,286,633		$	1,499,977	$	1,573,123	$	1,296,416
Cost of educational services		486,353			538,350			553,065		537,855		449,835
Student services and administrative expenses		397,541			400,856			414,156		415,189		360,347
Asset impairment		0			15,166			0		0		0
Legal and other investigation costs (c)		6,923			873			0		0		0
Loss related to loan program guarantees (d)		90,964			101,025			23,500		5,650		0
Provision for PEAKS Trust student loan losses		29,349			0			0		0		0
Total costs and expenses		1,011,130			1,056,270			990,721		958,694		810,182
Operating income		61,181			230,363			509,256		614,429		486,234
(Loss) on consolidation of PEAKS Trust		(73,248	)		0			0		0		0
Interest income (expense), net		(25,169	)		(2,375	)		1,077		586		2,565
Income (loss) before provision for income taxes		(37,236	)		227,988			510,333		615,015		488,799
Provision (benefit) for income taxes		(10,212	)		89,018			201,247		240,314		190,099
Net income (loss)	$	(27,024	)	$	138,970		$	309,086	$	374,701	$	298,700
Earnings (loss) per share: (e)
Basic	$	(1.15	)	$	5.82		$	11.27	$	11.30	$	7.97
Diluted	$	(1.15	)	$	5.79		$	11.18	$	11.18	$	7.87
Other Operating Data (f):
Capital expenditures, net	$	4,468		$	17,204		$	26,847	$	26,811	$	23,992
Facility expenditures and land purchases	$	679		$	1,046		$	4,053	$	6,118	$	4,236
Number of students at end of period		57,542			61,059			73,255		84,686		80,766
Number of campuses at end of period		147			147			141		130		121
Number of learning sites at end of period		2			2			3		4		4
	As of December 31,
	2013(a)			2012(b)			2011(b)		2010(b)		2009(b)
	(Dollars in thousands)
Balance Sheet Data:
Cash and cash equivalents, restricted cash and investments	$	215,771		$	243,465		$	379,609	$	313,194	$	274,086
Total current assets	$	434,616		$	386,580		$	456,790	$	412,419	$	388,404
Property and equipment, less accumulated depreciation	$	168,509		$	189,890		$	201,257	$	198,213	$	195,449
Total assets	$	806,851		$	675,204		$	729,320	$	673,102	$	614,147
Total current liabilities	$	473,777		$	327,023		$	345,243	$	355,501	$	283,797
Total long-term debt	$	71,341		$	140,000		$	150,000	$	150,000	$	150,000
Total liabilities	$	691,205		$	549,439		$	560,215	$	546,060	$	459,125
Shareholders’ equity	$	115,646		$	125,765		$	169,105	$	127,042	$	155,022

(a) Beginning on February 28, 2013, we consolidated the PEAKS Trust in our consolidated financial statements. See Note 10 – Variable Interest Entities of the Notes to Consolidated Financial Statements, for a further discussion of the Consolidation.

(b) Certain amounts have been revised and reclassified from those that were reported in our Consolidated Statements of Income and on our Consolidated Balance Sheets in our Annual Reports on Form 10-K for our fiscal years ended December 31, 2012, 2011, 2010 and 2009.

-49-

We revised our Consolidated Statement of Income for the year ended December 31, 2012 to reflect immaterial corrections for:

• the recognition of revenue with respect to students who withdrew from a program of study, which reduced revenue by $20,376 and student services and administrative expenses by $21,489;

• losses related to the 2009 RSA, which increased both revenue and loss related to loan program guarantees by $19,800; and

• a contingent loss related to the 2009 RSA, which increased loss related to loan program guarantees by $3,539.

As a result of those corrections and a correction in the current and long-term classification of the contingent liability associated with the 2009 RSA, the following adjustments were made to our Consolidated Balance Sheet as of December 31, 2012:

• total current assets increased from $384,965 to $386,580;

• total assets increased from $672,230 to $675,204;

• total current liabilities increased from $306,949 to $327,023

• total liabilities increased from $545,276 to $549,439; and

• shareholders’ equity decreased from $126,954 to $125,765.

We reclassified certain items in our Consolidated Statement of Income for the year ended December 31, 2012 to reflect adjustments for:

• the settlement cost associated with the 2007 RSA, which decreased settlement cost and increased loss related to loan program guarantees by $21,750;

• the impairment of the subordinated note issued to us by the PEAKS Trust (the “Subordinated Note”) and the Revolving Note, which decreased loss related to private student loan programs and increased asset impairment by $15,166;

• losses related to private education loan programs, which decreased loss related to private student loan programs and increased loss related to loan program guarantees by $71,102; and

• legal and other investigation costs, which decreased cost of educational services and increased legal and other investigation costs by $873.

We revised our Consolidated Statement of Income for the year ended December 31, 2011 to reflect immaterial corrections for:

• the recognition of revenue with respect to students who withdrew from a program of study, which reduced revenue by $23,472 and student services and administrative expenses by $25,652; and

• losses related to the 2009 RSA and 2007 RSA, which increased both revenue and loss related to loan program guarantees by $23,500.

As a result of those corrections, the following adjustments were made to our Consolidated Balance Sheet as of December 31, 2011:

• total current assets increased from $456,288 to $456,790;

• total assets increased from $728,818 to $729,320;

• total current liabilities increased from $345,047 to $345,243;

• total liabilities increased from $560,019 to $560,215; and

• shareholders’ equity increased from $168,799 to $169,105.

We revised our Consolidated Statement of Income for the year ended December 31, 2010 to reflect immaterial corrections for:

• the recognition of revenue with respect to students who withdrew from a program of study, which reduced revenue by $29,056 and student services and administrative expenses by $29,936; and

• losses related to the 2007 RSA, which increased both revenue and loss related to loan program guarantees by $5,650.

As a result of those corrections, the following adjustments were made to our Consolidated Balance Sheet as of December 31, 2010:

• total current assets decreased from $414,097 to $412,419;

• total assets decreased from $674,780 to $673,102;

• total current liabilities decreased from $356,151 to $355,501;

• total liabilities decreased from $546,710 to $546,060; and

• shareholders’ equity decreased from $128,070 to $127,042.

We revised our Consolidated Statement of Income for the year ended December 31, 2009 to reflect immaterial corrections for the recognition of revenue with respect to students who withdrew from a program of study, which reduced revenue by $22,778 and student services and administrative expenses by $20,220.

As a result of those corrections, the following adjustments were made to our Consolidated Balance Sheet as of December 31, 2009:

• total current assets decreased from $390,962 to $388,404;

-50-

• total assets decreased from $616,705 to $614,147;

• total current liabilities decreased from $284,792 to $283,797;

• total liabilities decreased from $460,120 to $459,125; and

• shareholders’ equity decreased from $156,585 to $155,022.

The following tables set forth the effect of the revisions and reclassifications of the amounts on the affected line items of the Statement of Income Data for the periods indicated:

	Year Ended December 31, 2012
	As Previously Reported		Revisions			Reclassifications			As Revised
Statement of Income Data:
Revenue	$	1,287,209	$	(576	)		0		$	1,286,633
Cost of educational services		539,223		0			(873	)		538,350
Student services and administrative expenses		422,345		(21,489	)		0			400,856
Settlement cost		21,750		0			(21,750	)		0
Asset impairment		0		0			15,166			15,166
Legal and other investigation costs		0		0			873			873
Loss related to private student loan programs		71,102		0			(71,102	)		0
Loss related to loan program guarantees		0		23,339			77,686			101,025
Total costs and expenses		1,054,420		1,850			0			1,056,270
Operating income		232,789		(2,426	)		0			230,363
Income before provision for income taxes		230,414		(2,426	)		0			227,988
Provision for income taxes		89,949		(931	)		0			89,018
Net income		140,465		(1,495	)		0			138,970
Earnings per share:
Basic	$	5.88							$	5.82
Diluted	$	5.85							$	5.79

	Year Ended December 31, 2011
	As Previously Reported		Revisions			As Revised
Statement of Income Data:
Revenue	$	1,499,949	$	28		$	1,499,977
Student services and administrative expenses		439,808		(25,652	)		414,156
Loss related to loan program guarantees		0		23,500			23,500
Total costs and expenses		992,873		(2,152	)		990,721
Operating income		507,076		2,180			509,256
Income before provision for income taxes		508,153		2,180			510,333
Provision for income taxes		200,401		846			201,247
Net income		307,752		1,334			309,086
Earnings per share:
Basic	$	11.22				$	11.27
Diluted	$	11.13				$	11.18

	Year Ended December 31, 2010
	As Previously Reported		Revisions			As Revised
Statement of Income Data:
Revenue	$	1,596,529	$	(23,406	)	$	1,573,123
Student services and administrative expenses		445,125		(29,936	)		415,189
Loss related to loan program guarantees		0		5,650			5,650
Total costs and expenses		982,980		(24,286	)		958,694
Operating income		613,549		880			614,429
Income before provision for income taxes		614,135		880			615,015
Provision for income taxes		239,969		345			240,314
Net income		374,166		535			374,701
Earnings per share:
Basic	$	11.28				$	11.30
Diluted	$	11.17				$	11.18

-51-

	Year Ended December 31, 2009
	As Previously Reported		Revisions			As Revised
Statement of Income Data:
Revenue	$	1,319,194	$	(22,778	)	$	1,296,416
Student services and administrative expenses		380,567		(20,220	)		360,347
Total costs and expenses		830,402		(20,220	)		810,182
Operating income		488,792		(2,558	)		486,234
Income before provision for income taxes		491,357		(2,558	)		488,799
Provision for income taxes		191,094		(995	)		190,099
Net income		300,263		(1,563	)		298,700
Earnings per share:
Basic	$	8.01				$	7.97
Diluted	$	7.91				$	7.87

(c) Legal and other investigation costs represent the cost and other expenses associated with certain lawsuits, investigations and other claims and actions involving us. See Note 16 – Commitments and Contingencies of the Notes to Consolidated Financial Statements, for a further discussion of those matters.

(d) Loss related to loan program guarantees represents the additional contingent liability accruals recorded for the RSAs and 2007 RSA, which includes the accrual that we recorded in 2012 for the settlement related to the 2007 RSA.

(e) Earnings (loss) per share for all periods have been calculated in conformity with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification™ (“ASC” or “Codification”) 260, “Earnings Per Share.” Earnings (loss) per share data are based on historical net income and the weighted average number of shares of our common stock outstanding during each period. The number of shares used to calculate basic earnings per share differs from the number of shares used to calculate diluted earnings per share. The number of shares used to calculate basic earnings per share was the weighted average number of common shares outstanding. The number of shares used to calculate diluted earnings per share was the weighted average number of common shares outstanding, plus the average number of shares that could be issued under our stock-based compensation plans and less the number of shares assumed to be purchased with any proceeds received from the exercise of awards under those plans.

(f) We did not pay any cash dividends in any of the periods presented.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion should be read with the Selected Financial Data and the Consolidated Financial Statements and Notes to Consolidated Financial Statements included elsewhere in this report.

This management’s discussion and analysis of financial condition and results of operations is based on our consolidated financial statements, which have been prepared in conformity with generally accepted accounting principles in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amount of assets, liabilities, revenue, expenses and contingent assets and liabilities. Actual results may differ from those estimates and judgments under different assumptions or conditions.

In this management’s discussion and analysis of financial condition and results of operations, when we discuss factors that contributed to a change in our financial condition or results of operations, we disclose the primary factors that materially contributed to that change in the order of significance.

Revision of Prior Periods

This management’s discussion and analysis of financial condition and results of operations reflects the fact that we have revised our previously issued financial statements as of and for the years ended December 31, 2012 and 2011. We revised our Consolidated Statement of Income for the year ended December 31, 2012 to reflect immaterial corrections for:

• the recognition of revenue with respect to students who withdrew from a program of study, which reduced revenue by $20.4 million and student services and administrative expenses by $21.5 million;

• a contingent loss related to the 2009 RSA, which increased loss related to loan program guarantees by $3.5 million; and

• losses related to the 2009 RSA, which increased both revenue and loss related to loan program guarantees by $19.8 million.

-52-

We also reclassified certain items in our Consolidated Statement of Income for the year ended December 31, 2012 to reflect adjustments for:

• the settlement cost associated with the 2007 RSA, which decreased settlement cost and increased loss related to loan program guarantees by $21.8 million;

• the impairment of the Subordinated Note and Revolving Note, which decreased loss related to private student loan programs and increased asset impairment by $15.2 million;

• losses related to private education loan programs, which decreased loss related to private student loan programs and increased loss related to loan program guarantees by $71.1 million; and

• legal and other investigation costs, which decreased cost of educational services and increased legal and other investigation costs by $0.9 million.

We revised our Consolidated Statement of Income for the year ended December 31, 2011 to reflect immaterial corrections for the recognition of revenue with respect to students who withdrew from a program of study, which reduced revenue by $23.5 million and student services and administrative expenses by $25.7 million. We also corrected the classification of losses related to the 2009 RSA and 2007 RSA in our Consolidated Statement of Income for the year ended December 31, 2011, which increased both revenue and loss related to loan program guarantees by $23.5 million.

This management’s discussion and analysis of financial condition and results of operations discusses our financial condition and results of operations as of and for the 12 months ended December 31, 2012 and 2011 as so revised and reclassified.

Consolidation and Core Operations

In February 2014, we commenced a review of the accounting for a variable interest that we held in the PEAKS Trust, a VIE. We engaged significant internal and external resources to perform supplemental procedures to assist us in reviewing our financial statements and accounting practices (the “Supplemental Procedures”). As a result of the review and the Supplemental Procedures, on June 18, 2014, the Audit Committee of our Board of Directors determined that we should have consolidated the PEAKS Trust in our consolidated financial statements beginning on February 28, 2013. February 28, 2013 was the first date that we had the substantive unilateral right to remove the servicer of the PEAKS Trust Student Loans, as described further below.

We had previously concluded that we were not required to consolidate the PEAKS Trust in our consolidated financial statements, because we believed we did not have the power to direct the activities of the PEAKS Trust that most significantly impact its economic performance and, therefore, believed we were not the primary beneficiary of the PEAKS Trust. We determined that the activities of the PEAKS Trust that most significantly impact its economic performance involve the servicing of the PEAKS Trust Student Loans. We determined that February 28, 2013 was the first date that we could exercise our right to terminate the servicing agreement that governs the servicing activities of the PEAKS Trust Student Loans (“PEAKS Servicing Agreement”), due to the failure of the entity that performs those servicing activities on behalf of the PEAKS Trust to meet certain performance criteria specified in the PEAKS Servicing Agreement. As a result of this analysis, we concluded that we became the primary beneficiary of the PEAKS Trust on February 28, 2013, which was the first date that we had the power to direct the activities of the PEAKS Trust that most significantly impact the economic performance of the PEAKS Trust.

As a result of our determination that we should have consolidated the PEAKS Trust in our consolidated financial statements beginning on February 28, 2013, we concluded that we needed to restate the unaudited condensed consolidated financial statements in our Quarterly Reports on Form 10-Q for each of the fiscal quarters ended March 31, 2013, June 30, 2013 and September 30, 2013, and that those previously-issued financial statements should no longer be relied upon. See Note 10 – Variable Interest Entities of the Notes to Consolidated Financial Statements, for a further discussion of the Consolidation.

Our results of operations, financial condition and cash flows for periods after February 28, 2013 reflect the results of operations, financial condition and cash flows of the PEAKS Trust, because we were considered to have control over the PEAKS Trust under ASC 810, “Consolidation” (“ASC 810”), as a result of our substantive unilateral right to terminate the PEAKS Servicing Agreement. We do not, however, actively manage the operations of the PEAKS Trust, and the assets of the consolidated PEAKS Trust can only be used to satisfy the obligations of the PEAKS Trust. Our obligations under the PEAKS Guarantee remain in effect, until the PEAKS Senior Debt and the PEAKS Trust’s fees and expenses are paid in full, as discussed further under “—Private Education Loan Program Obligations” and Note 16—Commitments and Contingencies of the Notes to Consolidated Financial Statements.

Unless otherwise noted, the information in this management’s discussion and analysis of financial condition and results of operations is presented and discussed on a consolidated basis, including the PEAKS Trust. Certain information is also provided, however, regarding our results of operations, financial condition and cash flows on a basis that excludes the impact of the PEAKS Trust. We identify and describe our education programs and education-related services on this basis as our core operations (“Core Operations”). The presentation of the Core Operations financial measures differs from the presentation of our consolidated financial measures determined in accordance with generally accepted accounting principles in the United States (“GAAP”). We believe that the presentation of the Core Operations information assists investors in comparing current period information against prior periods during which the PEAKS Trust was not consolidated. In addition, our management believes that the Core Operations information provides useful information to investors, because it:

• allows more meaningful information about our ongoing operating results, financial condition and cash flows;

-53-

• helps in performing trend analyses and identifying trends that may otherwise be masked or distorted by items that are not part of the Core Operations; and

• provides a higher degree of transparency of our core results of operations, financial condition and cash flows.

The following tables set forth selected data from our balance sheets, statements of income and statements of cash flows as of and for the years ended:

• December 31, 2012 (which was prior to the Consolidation); and

• December 31, 2013, regarding:

• the Core Operations on a stand-alone basis;

• the PEAKS Trust on a stand-alone basis;

• the elimination of transactions between the PEAKS Trust and Core Operations, as a result of the Consolidation; and

• the Core Operations and the PEAKS Trust consolidated in accordance with GAAP.

The information presented related to 2013 also constitutes the reconciliation of our non-GAAP Core Operations and PEAKS Trust data to the related GAAP consolidated financial measures. Following each table, we describe the effect of the Consolidation on the financial statement information presented, including the components attributable to the Core Operations and the PEAKS Trust.

			As of December 31, 2013
	As of December 31, 2012		Core Operations		PEAKS Trust			Eliminations			GAAP Consolidated
	(Dollar amounts in thousands)
Balance Sheet Data:
Cash and cash equivalents	$	243,465	$	215,771	$	0		$	0		$	215,771
Restricted cash		3,478		3,043		2,593			0			5,636
Accounts receivable, net		78,928		99,530		0			0			99,530
PEAKS Trust student loans, net		0		0		7,730			0			7,730
Deferred income taxes		44,547		33,961		43,588			0			77,549
Prepaid expenses and other current assets		16,162		27,827		573			0			28,400
Total current assets		386,580		380,132		54,484			0			434,616
Property and equipment, net		189,890		168,509		0			0			168,509
PEAKS Trust student loans, net		0		0		76,479			0			76,479
Deferred income taxes		57,471		113,398		(45,074	)		0			68,324
Other assets		41,263		67,354		0			(8,431	)		58,923
Total assets	$	675,204	$	729,393	$	85,889		$	(8,431	)	$	806,851
Current portion of long-term debt	$	0	$	50,000	$	0		$	0		$	50,000
Current portion of PEAKS Trust senior debt		0		0		157,883			0			157,883
Accounts payable		63,304		58,021		0			0			58,021
Accrued compensation and Benefits		21,023		18,107		0			0			18,107
Other current liabilities		106,796		33,366		11,830			(3,060	)		42,136
Deferred revenue		135,900		147,630		0			0			147,630
Total current liabilities		327,023		307,124		169,713			(3,060	)		473,777
Long-term debt		140,000		0		0			0			0
PEAKS Trust senior debt		0		0		71,341			0			71,341
Other liabilities		82,416		213,343		1,684			(68,940	)		146,087
Total liabilities		549,439		520,467		242,738			(72,000	)		691,205
Total shareholders’ equity		125,765		208,926		(156,849	)		63,569			115,646
Total liabilities and shareholders’ equity	$	675,204	$	729,393	$	85,889		$	(8,431	)	$	806,851

-54-

In accordance with ASC 810, the assets and liabilities of the PEAKS Trust were treated as having been acquired by us at their fair values as of February 28, 2013. The carrying values of the assets and liabilities of the PEAKS Trust are included on our Consolidated Balance Sheet as of December 31, 2013. The assets of the PEAKS Trust consist of cash and the PEAKS Trust Student Loans. The liabilities of the PEAKS Trust consist primarily of the PEAKS Senior Debt. For further information about the terms of the PEAKS Senior Debt, see “—Financial Condition, Liquidity and Capital Resources—Financing.” The assets of the PEAKS Trust serve as collateral for, and are intended to be the principal source of, the repayment of the PEAKS Senior Debt. The carrying values of the assets and liabilities related to the PEAKS Program that had been included as balance sheet items related to our Core Operations and consisted of the Subordinated Note, a guarantee receivable and a contingent liability, were eliminated from our Consolidated Balance Sheet as of December 31, 2013.

Although the assets and liabilities of the PEAKS Trust are presented on our Consolidated Balance Sheets following the Consolidation, the assets of the PEAKS Trust can only be used to satisfy the obligations of the PEAKS Trust.

				Year Ended December 31, 2013
	Year Ended December 31, 2012			Core Operations			PEAKS Trust			Eliminations			GAAP Consolidated
	(Dollar amounts in thousands)
Statement of Income Data:
Revenue	$	1,286,633		$	1,059,315		$	12,996		$	0		$	1,072,311
Cost and expenses:
Cost of educational services		538,350			486,353			0			0			486,353
Student services and administrative expenses		400,856			392,253			5,288			0			397,541
Asset impairment		15,166			0			0			0			0
Legal and other investigation costs		873			6,923			0			0			6,923
Loss related to loan program guarantees		101,025			115,503			0			(24,539	)		90,964
Provision for PEAKS Trust student loan losses		0			0			29,349			0			29,349
Total costs and expenses		1,056,270			1,001,032			34,637			(24,539	)		1,011,130
Operating income (loss)		230,363			58,283			(21,641	)		24,539			61,181
(Loss) on consolidation of PEAKS Trust		0			0			(112,748	)		39,500			(73,248	)
Interest income		1,348			578			0			(470	)		108
Interest (expense)		(3,723	)		(3,989	)		(21,288	)		0			(25,277	)
Income (loss) before provision for income taxes		227,988			54,872			(155,677	)		63,569			(37,236	)
Provision for income taxes		89,018			(11,384	)		1,172			0			(10,212	)
Net income (loss)	$	138,970		$	66,256		$	(156,849	)	$	63,569		$	(27,024	)

The Consolidation impacts the presentation of our Statements of Income in a number of ways. Following the Consolidation, our revenue consists of:

• revenue from the Core Operations, primarily from tuition, tool kit sales and student fees; and

• student loan interest income on the PEAKS Trust Student Loans, which is the accretion of the accretable yield on the PEAKS Trust Student Loans.

Following the Consolidation, our student services and administrative expenses are comprised of:

• expenses related to the Core Operations, including marketing expenses, an expense for uncollectible accounts and administrative expenses incurred primarily at our corporate headquarters; and

• expenses incurred by the PEAKS Trust, primarily related to fees for servicing the PEAKS Trust Student Loans and various other administrative fees and expenses of the PEAKS Trust.

The loss related to loan program guarantees represents:

• in 2012, the additional contingent liability accruals that we recorded related to the PEAKS Guarantee and the 2009 RSA; and

• in 2013, the additional contingent liability accruals that we recorded related to the 2009 RSA, because the contingent liability related to the PEAKS Guarantee was eliminated from our consolidated financial statements as a result of the Consolidation (though our obligations under the PEAKS Guarantee remain in effect).

-55-

Following the Consolidation, our provision for PEAKS Trust student loan losses represents the increase in the allowance for loan losses that occurred during the period. The allowance for loan losses is the difference between the carrying value and the total present value of the expected principal and interest collections of each loan pool of the PEAKS Trust Student Loans, discounted by the loan pool’s effective interest rate as of December 31, 2013.

We recognized a loss upon the Consolidation that represented the amount by which the fair value of the PEAKS Trust’s liabilities exceeded the fair value of the PEAKS Trust’s assets as of February 28, 2013, partially reduced by the net amount of the carrying value of the assets and liabilities related to the PEAKS Program that had been recorded in our consolidated financial statements as of February 28, 2013 and were eliminated upon the Consolidation. Following the Consolidation, our interest expense includes:

• interest expense from matters related to the Core Operations, primarily the interest expense on the outstanding balance under the Amended Credit Agreement; and

• interest expense on the PEAKS Senior Debt, which includes the contractual interest obligation and the accretion of the discount on the PEAKS Senior Debt.

Since the inception of the PEAKS Program, we have guaranteed, and continue to guarantee, the payment of the principal and interest owed on the PEAKS Senior Debt, the administrative fees and expenses of the PEAKS Trust and the minimum required Asset/Liability Ratio, pursuant to the terms of the PEAKS Guarantee. Our obligations under the PEAKS Guarantee remain in effect until the PEAKS Senior Debt and the PEAKS Trust’s fees and expenses are paid in full.

The revenue and expenses of the PEAKS Trust are presented in our Consolidated Statements of Income following the Consolidation. The cash received by the PEAKS Trust, which is derived from its revenue, however, is considered restricted and can only be used to satisfy the obligations of the PEAKS Trust.

-56-

				Year Ended December 31, 2013
	Year Ended December 31, 2012			Core Operations			PEAKS Trust			Eliminations			GAAP Consolidated
	(Dollar amounts in thousands)
Statement of Cash Flows Data:
Cash flows from operating activities:
Net income (loss)	$	138,970		$	66,256		$	(156,849	)	$	63,569		$	(27,024	)
Adjustments to reconcile net income to net cash flows from operating activities:
Depreciation and amortization		29,350			27,252			0			0			27,252
Provision for doubtful accounts		56,818			67,640			0			0			67,640
Deferred income taxes		(59,999	)		(47,318	)		(7,107	)		0			(54,425	)
Excess tax benefit from stock option exercises		(1,382	)		0			0			0			0
Stock-based compensation expense		16,658			11,638			0			0			11,638
Settlement cost		21,750			(46,000	)		0			0			(46,000	)
Asset impairment		15,166			0			0			0			0
Accretion of discount on PEAKS Trust student loans		0			0			(12,996	)		0			(12,996	)
Accretion of discount on PEAKS Trust senior debt		0			0			4,926			0			4,926
Provision for PEAKS Trust student loan losses		0			0			29,349			0			29,349
Loss on consolidation of PEAKS Trust		0			0			112,748			(39,500	)		73,248
Other		6,992			315			0			0			315
Changes in operating assets and liabilities:
Restricted cash		3,794			435			(890	)		0			(455	)
Accounts receivable		(87,138	)		(87,225	)		0			0			(87,225	)
PEAKS Trust student loans		0			0			11,554			0			11,554
Accounts payable		(15,572	)		(5,574	)		0			0			(5,574	)
Other operating assets and Liabilities		72,857			76,651			21,621			(24,069	)		74,203
Deferred revenue		(90,643	)		11,299			0			0			11,299
Net cash flows from operating activities		107,621			75,779			1,946			0			77,725
Net cash flows from investing activities		123,164			(13,078	)		0			0			(13,078	)
Cash flows from financing activities:
Excess tax benefit from stock option exercises		1,382			0			0			0			0
Proceeds from exercise of stock options		8,345			0			0			0			0
Debt issue costs		(1,525	)		0			0			0			0
Proceeds from revolving borrowings		175,000			0			0			0			0
Repayment of revolving borrowings		(185,000	)		(90,000	)		0			0			(90,000	)
Repayment of PEAKS Trust senior debt		0			0			(1,946	)		0			(1,946	)
Repurchase of common stock and shares tendered for taxes		(209,371	)		(395	)		0			0			(395	)
Net cash flows from financing activities		(211,169	)		(90,395	)		(1,946	)		0			(92,341	)
Net change in cash and cash equivalents		19,616			(27,694	)		0			0			(27,694	)
Cash and cash equivalents at beginning of period		223,849			243,465			0			0			243,465
Cash and cash equivalents at end of period	$	243,465		$	215,771		$	0		$	0		$	215,771

Although the cash flows of the PEAKS Trust are presented in our Consolidated Statements of Cash Flows following the Consolidation, the cash resulting from the cash flows from operations and financing activities of the PEAKS Trust can only be used to satisfy the obligations of the PEAKS Trust.

-57-

General

As of December 31, 2013, we had 149 locations (including 147 campuses and two learning sites) in 39 states, which were providing education programs to approximately 57,000 students, and one training facility which was providing training programs. In 2013, we derived approximately 98% of our revenue from the Core Operations from tuition and approximately 2% from the sale of tool kits and fees, charged to and paid by, or on behalf of, our students. Most students enrolled in our education programs at our institutions pay a substantial portion of their tuition and other education-related expenses with funds received under various government-sponsored student financial aid programs, especially Title IV Programs.

Our revenue from the Core Operations varies based primarily on the following factors:

• the aggregate student population, which is influenced by the number of students attending our institutions at the beginning of a fiscal period and student retention rates;

• the amount of tuition charged to our students; and

• the levels of availability and utilization of institutional scholarships, grants and awards.

New students generally enter our education programs at the beginning of an academic term that typically begins for most education programs in early March, mid-June, early September and late November or early December. We believe that the changes to our institutions’ aggregate student population in recent years was primarily due to:

• our prospective students’ greater sensitivity to the cost of a postsecondary education;

• our prospective students’ uncertainty about the value of a postsecondary education due to the prolonged economic and labor market disruptions;

• changes that we made to education program offerings at select campuses, which resulted in a more significant decline in new student enrollment in the criminal justice programs of study compared to our institutions’ other curricula; and

• the discontinuation or suspension of new student enrollments at select locations.

In order to participate in Title IV Programs, a new campus or learning site must be authorized by the state in which it will operate, accredited by an accrediting commission recognized by the ED, and certified by the ED to participate in Title IV Programs. The ED’s certification process cannot commence until the location receives its state authorization and accreditation.

We generally earn tuition revenue on a straight-line basis over the length of each of four, 12-week academic quarters in each fiscal year. State regulations, accrediting commission criteria and our policies generally require us to refund a portion of the tuition and fee payments received from a student who withdraws from one of our institutions during an academic term. We recognize immediately the amount of tuition and fees, if any, that we may retain after payment of any refund. Revenue that we recognize after the Consolidation also includes student loan interest income on the PEAKS Trust Student Loans, which is the accretion of the accretable yield on the PEAKS Trust Student Loans.

We incur expenses throughout a fiscal period in connection with the operation of our institutions. The cost of educational services includes salaries of faculty and institution administrators, cost of course materials, occupancy costs, depreciation and amortization of equipment costs, facilities and leasehold improvements, and other miscellaneous costs incurred by our institutions.

Student services and administrative expenses from the Core Operations include marketing expenses, an expense for uncollectible accounts and administrative expenses incurred at our corporate headquarters. Marketing expenses include advertising expenses and salaries and employee benefits for recruiting representatives. After the Consolidation, student services and administrative expenses also include expenses incurred by the PEAKS Trust, primarily related to fees for servicing the PEAKS Trust Student Loans and various other administrative fees and expenses of the PEAKS Trust.

In 2013, we continued to add education program and training program offerings among existing campuses and learning sites. We also continued our efforts to diversify our education program offerings by developing education programs at different degree levels in both technology and non-technology fields of study that we intend to offer at our campuses and deliver entirely in residence, entirely online over the Internet or partially in residence and partially online. In 2013, we did not begin operations at any new ITT Technical Institute campuses or learning sites. As part of our efforts to maximize the efficiency and effectiveness of our current campus locations, during 2013, we:

• relocated five of our campuses into existing facilities of other ITT Technical Institute campuses; and

• discontinued new student enrollments at two ITT Technical Institute campuses and, subsequently, determined to discontinue operations at those campuses after the students who are currently attending those campuses have had an opportunity to complete their education programs at those campuses.

-58-

The following table sets forth select operating and growth statistics for the periods indicated:

	Year Ended December 31,
	2013		2012		2011
Additional education program offerings		348		272		1,343
Additional training program offerings		293		N/A		N/A
Number of campuses and learning sites with additional education program offerings		104		62		132
Began operations at new campuses		0		6		11
Campuses offering bachelor degree programs		134		133		128

In 2014, we intend to add more of our current education program offerings among most of our institutions’ locations. We also plan to continue developing new education programs in both technology and non-technology fields, but primarily in technology- and healthcare-related disciplines. We believe that those programs of study will be at different education levels and delivered in a variety of formats, including entirely in residence, entirely online or partially in residence and partially online. While our growth strategy continues to include opening new campuses and learning sites, we do not expect to begin operations at any new campuses in 2014. We plan to continue to evaluate the performance of the current ITT Technical Institute campuses in order to maximize the efficiency and effectiveness of our national network of campuses. As part of this effort, we may relocate and/or suspend enrollments at additional campuses. We also plan to continue to develop and offer training programs to career advancers and other professionals through the CPD.

Critical Accounting Policies and Estimates

We believe the following critical accounting policies affect our more significant estimates and judgments used in the preparation of our consolidated financial statements. These policies should be read in conjunction with Note 1 – Business and Significant Accounting Policies of the Notes to Consolidated Financial Statements.

Recognition of Revenue. Tuition revenue is recorded on a straight-line basis over the length of the applicable course to the extent that we consider the collectability of that revenue to be reasonably assured. If a student withdraws from an institution, the standards of most SAs that regulate our institutions, the ACs and our own internal policy limit a student’s obligation for tuition and fees to the institution depending on when a student withdraws during an academic term. The terms of the Refund Policies vary by state, and the limitations imposed by the Refund Policies are generally based on the portion of the academic term that has elapsed at the time the student withdraws. Generally, the greater the portion of the academic term that has elapsed at the time the student withdraws, the greater the student’s obligation is to the institution for the tuition and fees related to that academic term. We record revenue net of any refunds that result from any applicable Refund Policy. On an individual student basis, tuition earned in excess of cash received is recorded as accounts receivable, and cash received in excess of tuition earned is recorded as deferred revenue.

We do not charge a separate fee for textbooks and certain equipment that students use in their education programs. We record the cost of these textbooks and equipment in prepaid expenses and other current assets and amortize the cost on a straight-line basis over the applicable course length. Tool kit sales, and the related cost, are recognized when the student receives the tool kit. Academic fees (which are charged only one time to students on their first day of class attendance) are recognized as revenue on a straight-line basis over the average education program length. If a student withdraws from an institution, all unrecognized revenue relating to his or her fees, net of any refunds that result from any applicable Refund Policy, is recognized upon the student’s departure. An administrative fee is charged to a student and recognized as revenue when the student withdraws or graduates from an education program at an institution. We reassess the collectability of tuition revenue on a student-by-student basis throughout our revenue recognition period. We reassess the collectability of tuition revenue that we may earn based on new information and changes in the facts and circumstances relevant to a student’s ability to pay, which primarily include when a student withdraws from a program of study.

We derived 98% of our revenue from tuition and 2% from tool kit sales and student fees in each of the years ended December 31, 2013, 2012 and 2011. The amount of tuition earned depends on:

• the cost per credit hour of the courses in our education programs;

• the length of a student’s enrollment;

• the number of courses a student takes during each period of enrollment; and

• the total number of students enrolled in our education programs.

Each of these factors is known at the time our tuition revenue is calculated.

We have significantly increased the amount of institutional scholarships and awards that we offer to our institutions’ students and which those students use to help reduce their educational expenses. Institutional scholarships and awards reduce the students’ tuition charges and are recorded as offsets to revenue. In the year ended December 31, 2013, institutional scholarships and awards amounted to, in aggregate, approximately $171.2 million, compared to approximately $65.1 million in the year ended December 31, 2012.

-59-

Interest income on the PEAKS Trust Student Loans, which is the accretion of the accretable yield on the PEAKS Trust Student Loans, is included in revenue on our Consolidated Statements of Income and recognized based on the effective interest method, as described in Note 11 – PEAKS Trust Student Loans of the Notes to Consolidated Financial Statements.

Equity-Based Compensation. In accordance with ASC 718, “Compensation – Stock Compensation” (“ASC 718”), the value of our equity instruments exchanged for employee and director services is measured at the date of grant, based on the calculated fair value of the grant, and is recognized as an expense over the period of time that the grantee must provide services to us before the stock-based compensation is fully vested. The vesting period is generally the period set forth in the agreement granting the stock-based compensation. Under the terms of our stock-based compensation plans, some grants immediately vest in full when the grantee’s employment or service terminates for death or disability. As a result, in certain circumstances, the period of time that the grantee must provide services to us in order for that stock-based compensation to fully vest may be less than the vesting period set forth in the agreement granting the stock-based compensation. In these instances, compensation expense will be recognized over this shorter period. We recognize stock-based compensation expense on a straight-line basis over the service period applicable to the grantee.

We use a binomial option pricing model to determine the fair value of stock options granted, and we use the market price of our common stock to determine the fair value of restricted stock and restricted stock units (“RSUs”) granted. Various assumptions are used in the binomial option pricing model to determine the fair value of the stock options. These assumptions are discussed in Note 1 – Business and Significant Accounting Policies of the Notes to Consolidated Financial Statements.

The following table sets forth the stock-based compensation expense and related income tax benefit recognized in our Consolidated Statements of Income in the periods indicated:

	Year Ended December 31,
	2013		2012		2011
	(In thousands)
Stock-based compensation expense	$	11,638	$	16,658	$	17,074
Income tax (benefit)		($4,481)		($6,414)		($6,574)
		$7,157		$10,244		$10,500

As of December 31, 2013, we estimated that pre-tax compensation expense for unvested stock-based compensation grants in the amount of approximately $13.9 million, net of estimated forfeitures, will be recognized in future periods. We expect to recognize this expense over the remaining service period applicable to the grantees which, on a weighted average basis, is approximately two years.

See also Note 1 – Business and Significant Accounting Policies and Note 7 – Equity Compensation Plans of the Notes to Consolidated Financial Statements, for a discussion of stock-based compensation.

Income Taxes. We follow ASC 740, “Income Taxes” (“ASC 740”), which prescribes a single, comprehensive model for how a company should recognize, measure, present and disclose in its financial statements uncertain tax positions that the company has taken or expects to take on a tax return. This guidance requires us to evaluate whether it is more likely than not, based on the technical merits of a tax position, that the benefits resulting from the position will be realized by us.

Accounts Receivable and Allowance for Doubtful Accounts. We extend unsecured credit to our institutions’ students for tuition and fees, and we record a receivable for the tuition and fees earned in excess of the payment received from or on behalf of a student. The individual student balances of these receivables are insignificant. We record an allowance for doubtful accounts with respect to accounts receivable based on the students’ credit profiles and our historical collection experience related to amounts owed by our students with similar credit profiles. If our collection trends were to differ significantly from our historical collection experience, we would make a corresponding adjustment to our allowance for doubtful accounts.

When a student is no longer enrolled in an education program at one of our campuses, we increase the allowance for doubtful accounts related to the former student’s receivable balance to reflect the amount we estimate will not be collected. The amount that we estimate will not be collected is based on a review of the historical collection experience for each campus, adjusted as needed to reflect other facts and circumstances. We review the collection activity after a student withdraws or graduates from an education program and will write off the accounts receivable, if we conclude that collection of the balance is not probable.

PEAKS Trust Student Loans. Beginning on February 28, 2013, we consolidated the PEAKS Trust, a VIE, that purchased, owns and collects the PEAKS Trust Student Loans made under the PEAKS Program in our consolidated financial statements. Certain of the PEAKS Trust Student Loans had evidence of credit deterioration since the date those loans were originated and, therefore, we determined that, at the date of the Consolidation, it was probable that all contractually required payments under those loans would not be collected. We recorded those loans at fair value at the date of the Consolidation. We also recorded at fair value the PEAKS Trust Student Loans that did not individually have evidence of deteriorated credit quality at the date of the Consolidation, because we determined that the application of an expected cash flow model provided the most reasonable presentation and this accounting treatment was consistent with the American Institute of Certified Public Accountants’ (the

-60-

“AICPA”) December 18, 2009 Confirmation Letter (the “Confirmation Letter”). No allowance for loan losses was recorded at the date of the Consolidation, because all of the PEAKS Trust Student Loans were recorded at fair value and future credit losses are considered in the estimate of fair value. Cash flows from PEAKS Trust Student Loans expected to be collected within the next 12 months have been classified as current in our consolidated balance sheet. The remaining balance is classified as non-current.

We aggregated the individual PEAKS Trust Student Loans into 24 separate pools of loans, based on common risk characteristics of the individual loans, which included:

• the fiscal quarter in which the PEAKS Trust Student Loan was originated; and

• the consumer credit score of the borrower.

Loans that did not have evidence of deteriorated credit quality were not aggregated in the same pools with loans that had evidence of deteriorated credit quality. The same aggregation criteria, however, were used to determine those loan pools. Each loan pool is accounted for as a single asset with a single composite interest rate and an aggregate expectation of cash flows.

On a quarterly basis, we estimate the total principal and interest expected to be collected over the remaining life of each loan pool. These estimates include assumptions regarding default rates, forbearances and other factors that reflect then-current market conditions. If a decrease in the expected cash flows of a loan pool is probable and would cause the expected cash flows to be less than the expected cash flows at the date of the Consolidation or the end of the previous fiscal quarter, whichever is later, we would record the impairment as:

• a provision for PEAKS Trust student loan losses in our Consolidated Statement of Income; and

• an increase in the allowance for loan losses on our Consolidated Balance Sheet.

The provision for PEAKS Trust student loan losses represents the increase in the allowance for loan losses that occurred during the period. The allowance for loan losses is the difference between the carrying value and the total present value of the expected principal and interest collections of each loan pool, discounted by the loan pool’s effective interest rate at the date of the Consolidation or the end of the previous fiscal quarter, whichever is later. If a significant increase in the expected cash flows of a loan pool is probable and would cause the expected cash flows to be greater than the expected cash flows at the date of the Consolidation or the end of the previous fiscal quarter, whichever is later, we would:

• first reverse any allowance for loan losses with respect to that loan pool that was previously recorded on our Consolidated Balance Sheet, up to the amount of that allowance; and

• record any remaining increase prospectively as a yield adjustment over the remaining estimated lives of the loans in the loan pool.

The impact of prepayments, changes in variable interest rates and any other changes in the timing of the expected cash flows of a loan pool are recognized prospectively as adjustments to interest income.

The impact of modifications made to loans in a loan pool is incorporated into our quarterly assessment of whether a significant change in the expected cash flows of the loan pool is probable or has occurred. We consider the historical loss experience associated with the PEAKS Trust Student Loans in estimating the future probabilities of default for all of the outstanding PEAKS Trust Student Loans.

The excess of any cash flows expected to be collected with respect to a loan pool of the PEAKS Trust Student Loans over the carrying value of the loan pool is referred to as the accretable yield. The accretable yield is not reported on our Consolidated Balance Sheets, but it is accreted and included as interest income at a level rate of return over the remaining estimated life of the loan pool. If we determine that the timing and/or amounts of expected cash flows with respect to a loan pool are not reasonably estimable, no interest income would be accreted and the loans in that loan pool would be reported as nonaccrual loans. We recognize the accretable yield of the PEAKS Trust Student Loans as interest income, because the timing and the amounts of the expected cash flows are reasonably estimable.

        If a PEAKS Trust Student Loan is paid in full or charged-off, that loan is removed from the loan pool. If the amount of the proceeds received for that loan, if any, is less than the unpaid principal balance of the loan, the difference is first applied against the loan pool’s nonaccretable difference for principal losses (i.e., the lifetime credit loss estimate established at the date of the Consolidation). If the nonaccretable difference for principal losses with respect to a loan pool has been fully depleted, any unpaid loan principal balance in excess of the proceeds received for the loan is charged-off against the loan pool’s allowance for loan losses. We do not recognize charge offs of individual PEAKS Trust Student Loans when those loans reach certain stages of delinquency, because those loans are accounted for at a loan pool level.

If any portion of a PEAKS Trust Student Loan that had previously been charged-off is recovered, the amount collected increases the applicable loan pool’s nonaccretable difference. If the nonaccretable difference with respect to the applicable loan pool has been fully depleted, the amount collected increases that loan pool’s allowance for loan losses.

Fair Value. ASC 820, “Fair Value Measurements” (“ASC 820”), defines fair value for financial reporting as the price that would be received upon the sale of an asset or paid upon the transfer of a liability in an orderly transaction between market participants at the measurement date. The fair value measurement of our financial assets utilized assumptions categorized as observable inputs under ASC 820. Observable inputs are assumptions based on independent market data sources.

-61-

The following table sets forth information regarding the recurring fair value measurement of our financial assets as of December 31, 2013:

			Fair Value Measurements at Reporting Date Using
			(Level 1)		(Level 2)		(Level 3)
Description	As of December 31, 2013		Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
	(In thousands)
Cash equivalents:
Money market fund	$	214,985	$	214,985	$	0	$	0
Restricted cash:
Money market fund		2,433		2,433		0		0
Other assets:
Money market fund		8,626		8,626		0		0
	$	226,044	$	226,044	$	0	$	0

We used quoted prices in active markets for identical assets as of the measurement date to value our financial assets that were categorized as Level 1.

Property and Equipment. We include all property and equipment in the financial statements at cost and make provisions for depreciation of property and equipment using the straight-line method. The following table sets forth the general ranges of the estimated useful lives of our property and equipment:

Type of Property and Equipment	Estimated Useful Life
Furniture and equipment	3 to 10 years
Leasehold, building and land improvements	3 to 14 years
Buildings	20 to 40 years

Changes in circumstances, such as changes in our curricula and technological advances, may result in the actual useful lives of our property and equipment differing from our estimates. We regularly review and evaluate the estimated useful lives of our property and equipment. Although we believe that our assumptions and estimates are reasonable, deviations from our assumptions and estimates could produce a materially different result.

Asset Impairment. We regularly review our long-lived assets and notes receivable for impairment whenever events or changes in circumstances indicate that the carrying amounts of those assets may not be recoverable. If we determine that the carrying value of the long-lived asset exceeds its fair market value, we recognize an impairment loss equal to the difference. We base our impairment analyses of long-lived assets on our current business strategy, expected growth rates and estimates of future economic and regulatory conditions. We evaluate each note receivable individually for impairment. We consider a note receivable to be impaired when it is probable that we will be unable to collect all amounts of principal and interest owed to us under the terms of the underlying note. If the present value of the expected future cash flows from the note receivable is less than the carrying value of the note receivable, we recognize an impairment loss in the amount of the difference.

Contingent Liabilities. We are subject to various claims and contingencies in the ordinary course of our business, including those related to litigation, government investigations, business transactions, guarantee obligations and employee-related matters, among others. When we are aware of a claim or potential claim, we assess the likelihood of any loss or exposure. If it is probable that a loss will result and the amount of the loss can be reasonably estimated, we record a liability for the loss. The liability recorded includes probable and estimable legal costs associated with the claim or potential claim. If the loss is not probable or the amount of the loss cannot be reasonably estimated, we disclose the claim if the likelihood of a potential loss is reasonably possible and the amount involved is material.

        We determine the amount of our contingent liabilities related to our guarantee obligations by estimating the expected payments to be made under the guarantee and the amount that we expect to be repaid to us. We also consider the payment options available to us. To the extent that we project that we will have sufficient funds available to discharge our guarantee obligations for the outstanding balance of those private education loans that have been charged off at the time that they default, we incorporate that assumption into our estimate of the contingent liability. If we do not believe that we will have sufficient funds available, we assume that we will make monthly payments to satisfy our guarantee obligations as allowed under the applicable agreements. We discount the amount of those expected future monthly payments at a risk-free rate of interest. Making payments for the full amount of the charged-off loans at the time that they default results in us paying a lesser amount than we otherwise would have been required to pay under our guarantee obligations in future periods and, therefore, results in an estimated contingent liability that is less than if we had assumed we would make monthly payments in the future.

We discount the amounts that we expect will be repaid to us to reflect a risk free rate of interest. The difference between the amount of the guarantee payments that we expect to make and the discounted amount that we expect will be repaid to us is included in our estimate of the amount of our contingent liability related to our guarantee obligations.

Debt. In accordance with ASC 810, we included the PEAKS Senior Debt on our consolidated balance sheet at its fair value as of February 28, 2013, the date of the Consolidation. The difference between the fair value of the PEAKS Senior Debt and its outstanding aggregate principal balance at the date of the Consolidation was recorded as an accrued discount on our consolidated balance sheet at the date of the Consolidation. The accrued discount will be recognized in interest expense at a level rate of return over the life of the PEAKS Senior Debt.

-62-

New Accounting Guidance

In May 2014, the FASB issued Accounting Standards Update (“ASU”) No. 2014-09, which is included in the Codification under ASC 606, “Revenue Recognition” (“ASC 606”). This guidance requires the recognition of revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration expected in exchange for those goods or services. This guidance will become effective for our interim and annual reporting periods beginning January 1, 2017. We have not completed our evaluation of the impact that this guidance may have on our consolidated financial statements.

In April 2014, the FASB issued ASU No. 2014-08, which is included in the Codification under ASC 205, “Presentation of Financial Statements” (“ASC 205”). This update changes the requirements for reporting discontinued operations and clarifies when disposals of groups of assets qualify for discontinued operations presentation under ASC 205. This guidance will become effective for our interim and annual reporting periods beginning January 1, 2015, and will be applied to any transactions that meet those requirements beginning January 1, 2015.

In July 2013, the FASB issued ASU No. 2013-11, which is included in the Codification under ASC 740. This update provides guidance on the presentation of unrecognized tax benefits when net operating loss carryforwards, similar tax losses or tax credit carryforwards exist. This guidance became effective for our interim and annual reporting periods beginning January 1, 2014. The adoption of this guidance did not have a material impact on our consolidated financial statements.

In February 2013, the FASB issued ASU No. 2013-02, which is included in the Codification under ASC 220, “Other Comprehensive Income” (“ASC 220”). This update requires an entity to report the effect, by component, of significant reclassifications out of accumulated other comprehensive income on the respective line items in net income. This guidance was effective for our interim and annual reporting periods beginning January 1, 2013. The adoption of this guidance requires us to provide additional disclosures regarding the amounts reclassified out of accumulated other comprehensive income during a reporting period. We have included these disclosures in the footnotes to our consolidated financial statements. The adoption of this guidance did not have a material impact on our consolidated financial statements.

In October 2012, the FASB issued ASU No. 2012-04, which makes technical corrections, clarifications and limited-scope improvements to various topics throughout the Codification. The amendments in this ASU that do not have transition guidance were effective upon issuance, and the amendments that are subject to transition guidance were effective for our interim and annual reporting periods beginning January 1, 2013. The adoption of this guidance did not have a material impact on our consolidated financial statements.

In July 2012, the FASB issued ASU No. 2012-02, which is included in the Codification under ASC 350, “Intangibles – Goodwill and Other” (“ASC 350”). This update allows an entity to first assess qualitative factors to determine whether it must perform a quantitative impairment test. An entity would be required to calculate the fair value of an indefinite-lived intangible asset, if the entity determines, based on a qualitative assessment, that it is more likely than not that the indefinite-lived intangible asset is impaired. This guidance was effective for impairment tests performed for our interim and annual reporting periods beginning January 1, 2013. The adoption of this guidance did not have a material impact on our consolidated financial statements.

In December 2011, the FASB issued ASU No. 2011-11, which is included in the Codification under ASC 210, “Balance Sheet.” This update provides for enhanced disclosures to help users of financial statements evaluate the effect or potential effect of netting arrangements on an entity’s financial position. In January 2013, the FASB issued ASU No. 2013-01, which clarified the scope of the disclosures required under ASU No. 2011-11. Both of these updates were effective for our interim and annual reporting periods beginning January 1, 2013. The adoption of this guidance did not have a material impact on our consolidated financial statements.

Variations in Quarterly Results of Operations

Our quarterly results of operations have tended to fluctuate within a fiscal year due to the timing of student matriculations. Each of our four fiscal quarters has 12 weeks of earned tuition revenue. The academic schedule generally does not affect our incurrence of most of our costs, however, and costs do not fluctuate significantly on a quarterly basis.

The revenue recognized in our fiscal quarters has been impacted by fluctuations in our institutions’ total student enrollment. These fluctuations were primarily due to changing patterns of student matriculations and variations in student persistence, which were primarily attributable to the number of graduates in the fiscal quarter and student retention in certain courses. These factors are discussed in greater detail below under “—Results of Operations.” In addition, the increased amount of our institutional scholarships and awards, primarily the Opportunity Scholarship, has reduced revenue per student in the various periods compared to the same prior year periods.

-63-

The following table sets forth the Core Operations revenue per student for the periods indicated:

	Core Operations Revenue per Student
	2013					2012					2011
Three Months Ended	Amount		Increase (Decrease) to Prior Year			Amount		Increase (Decrease) to Prior Year			Amount		Increase (Decrease) to Prior Year
March 31	$	4,646		0.3	%	$	4,631		1.7	%	$	4,552		(2.7	%)
June 30		4,200		(8.9	%)		4,613		0.4	%		4,593		(2.6	%)
September 30		4,360		(7.7	%)		4,726		2.6	%		4,604		(0.9	%)
December 31		4,323		(7.1	%)		4,654		(0.8	%)		4,619		1.0	%
Total for Year	$	17,529		(5.9	%)	$	18,624		1.4	%	$	18,368		(1.4	%)

Core Operations revenue per student is calculated by dividing all revenue from Core Operations by the total student enrollment in education programs as of the beginning of the applicable fiscal period.

Results of Operations

The following table sets forth the percentage relationship of certain statement of income data to revenue for the periods indicated:

	Year Ended December 31,
	2013			2012			2011
Revenue		100.0	%		100.0	%		100.0	%
Cost of educational services		45.4	%		41.8	%		36.9	%
Student services and administrative expenses		37.1	%		31.2	%		27.6	%
Asset impairment		0.0	%		1.1	%		0.0	%
Legal and other investigation costs		0.6	%		0.1	%		0.0	%
Loss related to loan program guarantees		8.5	%		7.9	%		1.6	%
Provision for PEAKS Trust student loan losses		2.7	%		0.0	%		0.0	%
Operating income		5.7	%		17.9	%		33.9	%
(Loss) on consolidation of PEAKS Trust		(6.8	)%		0.0	%		0.0	%
Interest income (expense), net		(2.3	)%		(0.2	)%		0.1	%
Income (loss) before income taxes		(3.5	)%		17.7	%		34.0	%

The following table sets forth our total student enrollment in education programs as of the dates indicated:

As of December 31,	Total Student Enrollment in Education Programs		Increase (Decrease) to Prior Year
2013		57,542		(5.8	%)
2012		61,059		(16.6	%)
2011		73,255		(13.5	%)

Total student enrollment in education programs includes all new and continuing students. A continuing student is any student who, in the academic term being measured, is enrolled in an education program at one of our campuses and was enrolled in the same program at any of our campuses at the end of the immediately preceding academic term. A new student is any student who, in the academic term being measured, enrolls in and begins attending any education program at one of our campuses:

• for the first time at that campus;

• after graduating in a prior academic term from a different education program at that campus; or

• after having withdrawn or been terminated from an education program at that campus.

-64-

The following table sets forth our new student enrollment in education programs in the periods indicated:

	2013					2012					2011
New Student Enrollment in Education Programs in the Three Months Ended:	New Student Enrollment in Education Programs		Increase (Decrease) to Prior Year			New Student Enrollment in Education Programs		(Decrease) to Prior Year			New Student Enrollment in Education Programs		(Decrease) to Prior Year
March 31		17,412		(3.6	%)		18,067		(17.0	%)		21,761		(5.6	%)
June 30		16,883		7.5	%		15,698		(9.5	%)		17,351		(19.9	%)
September 30		20,307		5.2	%		19,298		(15.8	%)		22,909		(14.1	%)
December 31		13,995		4.5	%		13,398		(11.4	%)		15,125		(14.7	%)
Total for the year		68,597		3.2	%		66,461		(13.9	%)		77,146		(13.4	%)

We believe that the 4.5% increase in new student enrollment in education programs in the three months ended December 31, 2013 compared to the three months ended December 31, 2012 was primarily due to an increase in the

• rate at which prospective students who applied for enrollment actually began attending classes in their education programs, and

• availability to, and use by, our students of institutional scholarships and awards (which have the effect of reducing the students’ cost of our education programs),

which were partially offset by a decrease in the number of prospective students who inquired about our education programs in the three months ended December 31, 2013.

We believe that the 5.2% increase in new student enrollment in education programs in the three months ended September 30, 2013 compared to the three months ended September 30, 2012 and the 7.5% increase in new student enrollment in education programs in the three months ended June 30, 2013 compared to the three months ended June 30, 2012 was primarily due to an increase in the:

• number of prospective students who inquired about our education programs in the three month periods ended September 30, 2013 and June 30, 2013;

• rate at which prospective students who applied for enrollment actually began attending classes in their education programs; and

• availability to, and use by, our students of institutional scholarships and awards (which have the effect of reducing the students’ cost of our education programs).

We believe that the 3.6% decrease in new student enrollment in education programs in the three months ended March 31, 2013 compared to the three months ended March 31, 2012 was primarily due to:

• changes that we made to education program offerings at select campuses which resulted in a more significant decline in new student enrollment in the criminal justice programs of study compared to our other curricula; and

• a decrease in new student enrollment in our bachelor degree programs.

We believe that the decrease in new student enrollment in education programs in the three months ended March 31, 2013 compared to the three months ended March 31, 2012 was also due to our prospective students’:

• greater sensitivity to the cost of postsecondary education; and

• uncertainty about the value of a postsecondary education due to the prolonged economic and labor market disruptions.

We believe that the decrease in new student enrollment in education programs in each of the three months ended December 31, 2012, September 30, 2012, June 30, 2012 and March 31, 2012 compared to the corresponding period in the prior year was primarily due to:

• our prospective students’ greater sensitivity to the cost of postsecondary education;

• our prospective students’ uncertainty about the value of a postsecondary education due to the prolonged economic and labor market disruptions; and

• changes that we made to education program offerings at select campuses which resulted in a more significant decline in new student enrollment in the criminal justice programs of study compared to our other curricula,

which resulted in a decrease in the rate at which prospective students who applied for enrollment actually began attending classes in their education programs.

A continued decline in total student enrollment in education programs, and declines in new student enrollment in education programs similar to those that we experienced prior to the three months ended June 30, 2013, could have a material adverse effect on our business, financial condition, revenue and other results of operations and cash flows. We have taken a number of steps in an attempt to reverse the declines in total and new student enrollment in education programs, including, without limitation:

-65-

• introducing other institutional scholarship programs for select education programs at certain locations, which are intended to help reduce the cost of an ITT Technical Institute education and increase student access to our education programs;

• refining our marketing, advertising and communications to focus more on the student value proposition and outcomes of an ITT Technical Institute education; and

• refining our education programs to better align the content with industry standards.

At the vast majority of our campuses, we generally organize the academic schedule for education programs offered on the basis of four 12-week academic quarters in a calendar year. The academic quarters typically begin in early March, mid-June, early September and late November or early December. To measure the persistence of our students, the number of continuing students in any academic term is divided by the total student enrollment in education programs in the immediately preceding academic term.

The following table sets forth the rates of our students’ persistence as of the dates indicated:

	Student Persistence as of:
Year	March 31			June 30			September 30			December 31
2013		71.5	%		68.4	%		69.4	%		71.4	%
2012		72.4	%		71.3	%		69.8	%		72.6	%
2011		73.5	%		73.1	%		71.5	%		73.4	%

We believe that the decrease in student persistence as of December 31, 2013 compared to December 31, 2012 and September 30, 2013 compared to September 30, 2012 was primarily due to a decrease in student retention in the three months ended September 30, 2013 compared to the same prior year period, primarily attributed to:

• lower student retention in a few courses that are delivered in the early portions of certain associate degree programs; and

• an increase in the number of students who were enrolled in hybrid courses, in which a portion of the course is delivered in residence and a portion is delivered online, and which generally have a lower student retention rate.

We believe that the decrease in student persistence as of June 30, 2013 compared to June 30, 2012 was primarily due to:

• an increase in the number of graduates at the end of the academic quarter that began in March 2013 compared to the end of the same academic quarter in the prior year; and

• a slight decrease in student retention in the three months ended June 30, 2013 compared to the same prior year period, primarily attributed to lower student retention in a few courses that are delivered in the early portions of certain associate degree programs.

The increase in the number of graduates at the end of the academic quarter that began in March 2013 was primarily due to two, instead of one, graduating classes of students comprised of:

• the first graduation class of the associate degree programs that we introduced in 2011, which reduce from eight to seven the number of academic quarters required for a full-time student to graduate; and

• the last graduation class of full-time students of the associate degree programs that required eight academic quarters for a full-time student to graduate.

We believe that the decrease in student persistence as of March 31, 2013 compared to March 31, 2012 was primarily due to the number of graduates in the three months ended March 31, 2013 compared to the three months ended March 31, 2012 decreasing at a lesser rate than the decline in total student enrollment in education programs as of December 31, 2012 compared to December 31, 2011.

We believe that the decrease in student persistence as of December 31, 2012 and September 30, 2012 compared to December 31, 2011 and September 30, 2011 was primarily due to:

• the number of graduates in the three months ended December 31, 2012 and September 30, 2012 compared to the corresponding prior year periods decreasing at a lesser rate than the decline in total student enrollment in education programs as of September 30 and June 30, 2012 compared to the same date in the prior year; and

• a slight decrease in student retention in the three months ended December 31 and September 30, 2012 compared to the corresponding prior year periods, principally as a result of a decline in retention in some of the courses in new education programs that we recently began offering.

We believe that the decrease in student persistence as of June 30 and March 31, 2012 compared to the corresponding prior year dates was primarily due to a higher number of students who graduated at the end of the academic period that began in March 2012 and December 2011 compared to the end of the corresponding academic periods in the prior year.

Year Ended December 31, 2013 Compared with Year Ended December 31, 2012. Revenue decreased $214.3 million, or 16.7%, to $1,072.3 million in the year ended December 31, 2013 compared to $1,286.6 million in the year ended December 31, 2012. The primary factors that contributed to this decrease were:

• an increase in institutional scholarships and awards provided to our students, which reduced revenue by $108.3 million in the year ended December 31, 2013 compared to the prior year; and

• an average 9.9% decrease in total student enrollment in education programs as of the end of each fiscal quarter in 2013 compared to 2012.

-66-

The increase in institutional scholarships and awards was primarily due to the introduction of the Opportunity Scholarship at the vast majority of the ITT Technical Institute campuses in the academic quarter that began in March 2013.

Revenue of the PEAKS Trust is comprised of interest income on the PEAKS Trust Student Loans, which is the accretion of the accretable yield on the PEAKS Trust Student Loans. Revenue attributable to the interest income on the PEAKS Trust Student Loans was approximately $13.0 million in the year ended December 31, 2013. No interest income on the PEAKS Trust Student Loans was included in revenue in the year ended December 31, 2012, because the Consolidation was effective February 28, 2013. See Note 10 – Variable Interest Entities of the Notes to Consolidated Financial Statements, for a discussion of the Consolidation.

Cost of educational services decreased $52.0 million, or 9.7%, to $486.4 million in the year ended December 31, 2013 compared to $538.4 million in the year ended December 31, 2012. The primary factors that contributed to this decrease included, in order of significance:

• a decrease in compensation and benefit costs resulting from fewer employees; and

• a decrease in course supply expenses, due to lower student enrollments in education programs.

Cost of educational services as a percentage of revenue increased 350 basis points to 45.4% in the year ended December 31, 2013 compared to 41.8% in the year ended December 31, 2012. The primary factor that contributed to this increase was a decline in revenue, which was partially offset by decreases in compensation and benefit costs and course supply expenses.

Student services and administrative expenses decreased $3.3 million, or 0.8%, to $397.5 million in the year ended December 31, 2013 compared to $400.9 million in the year ended December 31, 2012. The principal causes of this decrease were decreases in compensation and benefit costs and expenses related to student scholarships, which were partially offset by increases in media advertising expenses and bad debt expense. Approximately $5.3 million of expenses of the PEAKS Trust were included in student services and administrative expenses in the year ended December 31, 2013. Those expenses primarily represented fees for servicing the PEAKS Trust Student Loans and various other administrative fees and expenses of the PEAKS Trust. The amount of the fees for servicing the PEAKS Trust Student Loans are based on the outstanding balance of non-defaulted PEAKS Trust Student Loans, and the amount of the other administrative fees and expenses are based on the outstanding principal balance of the PEAKS Senior Debt.

Student services and administrative expenses increased to 37.1% of revenue in the year ended December 31, 2013 compared to 31.2% of revenue in the year ended December 31, 2012. The principal cause of this increase was the decline in revenue, which was partially offset by decreases in compensation and benefit costs and expenses related to student scholarships. Bad debt expense as a percentage of revenue increased to 6.3% in the year ended December 31, 2013 compared to 4.4% in the year ended December 31, 2012, primarily as a result of an increase in student account balances that were determined to be uncollectible.

We recorded an expense of $15.2 million in the year ended December 31, 2012 related to the impairment of the Subordinated Note and the Revolving Note. See Note 10 – Variable Interest Entities of the Notes to Consolidated Financial Statements, for a more detailed discussion of the impairment of the notes. No impairment of those notes was recorded in the year ended December 31, 2013.

Legal and other investigation costs increased $6.1 million, or 693.0%, to $6.9 million in the year ended December 31, 2013, compared to $0.9 million in the year ended December 31, 2012. Legal and other investigation costs represent the costs and other expenses associated with the SEC investigation of us, the CFPB investigation of us and the Securities Litigation. See “Legal Proceedings” and Note 16 – Commitments and Contingencies of the Notes to Consolidated Financial Statements, for further information about these matters.

In the year ended December 31, 2013, we recorded a loss related to loan program guarantees of $91.0 million for the 2009 RSA compared to $101.0 million in the year ended December 31, 2012 for the RSAs. The entire amount of the loss recorded in the year ended December 31, 2013 related to a change in our accounting estimate for the amount of our guarantee obligations under the 2009 RSA. We revised our estimate for the 2009 RSA based on an enhanced default rate methodology and more recent performance data that we obtained in the three months ended December 31, 2013. The primary enhancements and performance data included:

• an adjustment to the default estimates for student borrowers, as a result of recently obtained actual default data for similarly-situated student borrowers;

• an adjustment to the default rate expectations, due to declines in repayment performance;

• our ability to make Discharge Payments; and

• a lower expectation for collections on defaulted loans as a result of the performance to date of collections.

See “—Private Education Loan Program Obligations,” for a further discussion of the loss. The loss recorded in the year ended December 31, 2012 included $79.2 million for additional contingent liabilities related to our guarantee obligations under the 2009 RSA and PEAKS Guarantee and $21.8 million related to the settlement of litigation and the resolution of our guarantee obligations under the 2007 RSA. See “—Private Education Loan Program Obligations” and Note 10 – Variable Interest Entities and Note 16 – Commitments and Contingencies of the Notes to Consolidated Financial Statements.

Provision for PEAKS Trust student loan losses of approximately $29.3 million in the year ended December 31, 2013 represented the increase in the allowance for loan losses that occurred from February 28, 2013 through December 31, 2013. We

-67-

did not consolidate the PEAKS Trust in our consolidated financial statements in the year ended December 31, 2012, and, therefore, we did not include the PEAKS Trust Student Loans in our consolidated financial statements or recognize any provision for PEAKS Trust student loan losses in that year.

Operating income decreased $169.2 million, or 73.4%, to $61.2 million in the year ended December 31, 2013 compared to $230.4 million in the year ended December 31, 2012, primarily as a result of the impact of the factors discussed above in connection with revenue, cost of educational services, student services and administrative expenses, legal and other investigation costs, loss related to loan program guarantees and provision for PEAKS Trust student loan losses. Our operating margin decreased to 5.7% in the year ended December 31, 2013 compared to 17.9% in the year ended December 31, 2012, primarily due to the impact of the factors discussed above.

In the year ended December 31, 2013, we recorded a loss upon the Consolidation of $73.2 million. This loss represented the amount by which the fair value of the PEAKS Trust’s liabilities exceeded the fair value of the PEAKS Trust’s assets as of February 28, 2013 upon the Consolidation, partially reduced by the net amount of the carrying value of the assets and liabilities related to the PEAKS Program that had been recorded in our consolidated financial statements as of February 28, 2013 and were eliminated upon the Consolidation. See Note 10 – Variable Interest Entities of the Notes to Consolidated Financial Statements, for a further discussion of the Consolidation.

Interest income decreased $1.2 million, or 92.0%, to $0.1 million in the year ended December 31, 2013 compared to $1.3 million in the year ended December 31, 2012, primarily due to discontinuing the amortization of the discount on the Subordinated Note. See Note 10 – Variable Interest Entities of the Notes to Consolidated Financial Statements, for a discussion of the Subordinated Note.

Interest expense increased $21.6 million, or 578.9%, to $25.3 million in the year ended December 31, 2013 compared to $3.7 million in the year ended December 31, 2012, primarily due to:

• interest expense of approximately $21.3 million on the PEAKS Senior Debt, which includes the contractual interest obligation and the accretion of the discount on the PEAKS Senior Debt, in the year ended December 31, 2013 as a result of the Consolidation, during which the effective interest rate was 9.9%; and

• an increase in the effective interest rate under the Amended Credit Agreement, which was partially offset by a decrease in our weighted average outstanding borrowings under the revolving credit facility.

Our combined federal and state effective income tax rate was 27.4% in the year ended December 31, 2013 compared to 39.0% in the year ended December 31, 2012. The primary factor that contributed to the decrease in the effective income tax rate in the year ended December 31, 2013 compared to the year ended December 31, 2012 was the recognition of certain losses related to the PEAKS Trust in our consolidated financial statements for which an income tax benefit was not recognized.

Year Ended December 31, 2012 Compared with Year Ended December 31, 2011. Revenue decreased $213.3 million, or 14.2%, to $1,286.6 million in the year ended December 31, 2012 compared to $1,500.0 million in the year ended December 31, 2011. The primary factor that contributed to this decrease was an average 16.2% decrease in total student enrollment in education programs as of the end of each fiscal quarter in 2012 compared to 2011. The decrease in revenue from lower total student enrollment in education programs in 2012 was partially offset by a decrease in the amount of institutional scholarships and other awards that we granted to our students in 2012. We did not increase tuition rates for our ITT Technical Institute programs of study in 2012 or 2011.

Cost of educational services decreased $14.7 million, or 2.7%, to $538.4 million in the year ended December 31, 2012 compared to $553.1 million in the year ended December 31, 2011. The primary factors that contributed to this decrease included, in order of significance:

• a decrease in compensation costs resulting from fewer employees; and

• a decrease in legal expenses.

Cost of educational services as a percentage of revenue increased 490 basis points to 41.8% in the year ended December 31, 2012 compared to 36.9% in the year ended December 31, 2011. The primary factor that contributed to this increase was a decline in revenue, which was partially offset by decreases in compensation costs and legal expenses.

Student services and administrative expenses decreased $13.3 million, or 3.2%, to $400.9 million in the year ended December 31, 2012 compared to $414.2 million in the year ended December 31, 2011. The principal causes of this decrease were decreases in media advertising expenses and expenses related to student scholarships, which were partially offset by an increase in bad debt expense.

Student services and administrative expenses increased to 31.2% of revenue in the year ended December 31, 2012 compared to 27.6% of revenue in the year ended December 31, 2011. The principal causes of this increase were the decline in revenue and an increase in bad debt expense, which were partially offset by decreases in media advertising expenses and expenses related to student scholarships. Bad debt expense as a percentage of revenue increased to 4.4% in the year ended December 31, 2012 compared to 2.4% in the year ended December 31, 2011, primarily as a result of an increase in the amount of internal student financing that we provided to our students in the year ended December 31, 2012 compared to the year ended December 31, 2011. The increase in the amount of internal student financing was primarily due to a decline in the amount of private education loans available to our students in 2012 as a result of the expiration in 2011 of the two private education loan programs that provided the vast majority of private education loans to our students in 2011.

-68-

We recorded a loss of $15.2 million in the year ended December 31, 2012 for the impairment of the Revolving Note and Subordinated Note. See Note 10 – Variable Interest Entities of the Notes to Consolidated Financial Statements, for a discussion of the impairment of these assets.

Legal and other investigation costs associated with the CFPB investigation of us and the Securities Litigation were $0.9 million in the year ended December 31, 2012. We did not incur any legal and other investigation costs associated with those matters in the year ended December 31, 2011. See “Legal Proceedings” and Note 16 – Commitments and Contingencies of the Notes to Consolidated Financial Statements, for further information about these matters.

In the year ended December 31, 2012, we recorded a loss related to loan program guarantees of $101.0 million compared to $23.5 million in the year ended December 31, 2011. The $101.0 million loss in the year ended December 31, 2012 included $79.2 million for additional contingent liabilities related to our guarantee obligations under the 2009 RSA and PEAKS Guarantee and $21.8 million related to the settlement of litigation and the resolution of our guarantee obligations under the 2007 RSA. The $23.5 million loss recorded in the year ended December 31, 2011, related to our guarantee obligations under the 2009 RSA and 2007 RSA. See “—Off-Balance Sheet Arrangements” and Note 10 – Variable Interest Entities and Note 16 – Commitments and Contingencies of the Notes to Consolidated Financial Statements, for further information about the RSAs.

Operating income decreased $278.9 million, or 54.8%, to $230.4 million in the year ended December 31, 2012 compared to $509.3 million in the year ended December 31, 2011, primarily as a result of the impact of the factors discussed above in connection with revenue, cost of educational services, student services and administrative expenses, asset impairment and the loss related to loan program guarantees. Our operating margin decreased to 17.9% in the year ended December 31, 2012 compared to 33.9% in the year ended December 31, 2011, primarily due to the impact of the factors discussed above.

Interest income decreased $1.6 million, or 53.5%, to $1.3 million in the year ended December 31, 2012 compared to $2.9 million in the year ended December 31, 2011, primarily due to discontinuing the amortization of the discount on the Subordinated Note. See Note 10 – Variable Interest Entities of the Notes to Consolidated Financial Statements, for a discussion of the Subordinated Note. Interest expense increased $1.9 million, or 104.0%, to $3.7 million in the year ended December 31, 2012 compared to $1.8 million in the year ended December 31, 2011, primarily due to an increase in the effective interest rate under the Amended Credit Agreement.

Our combined federal and state effective income tax rate was 39.0% in the year ended December 31, 2012 compared to 39.4% in the year ended December 31, 2011.

Financial Condition, Liquidity and Capital Resources

Cash and cash equivalents were $215.8 million as of December 31, 2013 compared to $243.5 million as of December 31, 2012. The $27.7 million decrease in cash and cash equivalents as of December 31, 2013 compared to December 31, 2012 was primarily due to a reduction of $90.0 million in outstanding borrowings under the Amended Credit Agreement which was partially offset by net cash flows from operating activities of $77.7 million.

As of December 31, 2013, restricted cash included approximately $2.6 million of funds held by the PEAKS Trust. Those funds can only be used to satisfy the obligations of the PEAKS Trust.

We are required to recognize the funded status of our defined benefit postretirement plans on our balance sheet. We recorded an asset of $27.6 million for the ESI Pension Plan, a non-contributory defined benefit pension plan commonly referred to as a cash balance plan, and a liability of $0.3 million for the ESI Excess Pension Plan, a nonqualified, unfunded retirement plan, on our Consolidated Balance Sheet as of December 31, 2013. In order to determine those amounts, we performed an actuarial valuation of the ESI Pension Plan and ESI Excess Pension Plan (the “Pension Plans”), and reviewed and updated our key assumptions as part of each valuation, including the discount rate and expected long-term rate of return on the investments.

Effective March 31, 2006, the benefit accruals under the Pension Plans were frozen, such that no further benefits accrue under those plans after March 31, 2006. Participants in the Pension Plans, however, continue to be credited with vesting service and interest according to the terms of the Pension Plans. Total net pension benefit in the year ended December 31, 2013 was $2.1 million, compared to $0.2 million in the year ended December 31, 2012 and $0.9 million in the year ended December 31, 2011. In 2014, we do not expect that our total net pension benefit will be material.

We did not make any contributions to the Pension Plans in 2013 or 2012. We do not expect to make any material contributions to either of the Pension Plans in 2014.

See Note 15 – Employee Benefit Plans of the Notes to Consolidated Financial Statements, for a more detailed discussion of the Pension Plans.

Our Consolidated Balance Sheet as of December 31, 2013 included the assets and liabilities of the PEAKS Trust. The assets of the PEAKS Trust can only be used to satisfy the obligations of the PEAKS Trust.

-69-

Payments that we are required to make in the future pursuant to our guarantee obligations under the RSAs could have a material adverse effect on our cash flows and liquidity. See “—Financing,” for a further discussion of these matters. If we elect to make Discharge Payments in future periods, those payments could impact our liquidity in particular periods. See “— Private Education Loan Program Obligations,” for a further discussion of our guarantee obligations under the RSAs and Discharge Payments.

Capital Resources. Our cash flows are highly dependent upon the receipt of Title IV Program funds. The primary Title IV Programs from which the students at our campuses receive grants, loans and other aid to fund the cost of their education include:

• the FDL program, which represented, in aggregate, approximately 58% of our cash receipts in 2013 and 58% of our cash receipts in 2012; and

• the Pell program, which represented, in aggregate, approximately 24% of our cash receipts in 2013 and 22% of our cash receipts in 2012.

We also receive funds on behalf of our students from state financial aid programs, veterans’ and military service member benefit programs and other sources, which represented, in aggregate, approximately 13% of our cash receipts in 2013 and approximately 16% in 2012.

Under a provision of the HEA commonly referred to as the 90/10 Rule, a proprietary institution, such as each of our institutions, must not derive more than 90% of its applicable revenue in a fiscal year, on a cash accounting basis, from Title IV Programs. If an institution exceeds the 90% threshold for any single fiscal year, that institution would be placed on provisional certification status for the institution’s following two fiscal years. In addition, if an institution exceeds the 90% threshold for two consecutive fiscal years, it would be ineligible to participate in Title IV Programs as of the first day of the following fiscal year and would be unable to apply to regain its eligibility until the end of the second subsequent fiscal year. Payments that we made under the 2007 RSA and 2009 RSA impact the 90/10 Rule calculation by reducing the amount of cash receipts from sources other than Title IV Programs and total cash receipts. As a result of the Consolidation, disbursements of the private education loans that we received under the PEAKS Program are no longer considered cash proceeds from external sources for purposes of determining total cash receipts in the 90/10 Rule calculation. The amount of payments received by the PEAKS Trust from borrowers is included, however, in both the total receipts component and the cash receipts from sources other than Title IV Programs component of the 90/10 Rule calculation. In our 2013 and 2012 fiscal years, none of our institutions derived more than approximately 83% of its revenue from Title IV Programs under the 90/10 Rule calculation. In the aggregate, we derived approximately 82% of our revenue in 2013 and 80% of our revenue in 2012 from Title IV Programs under the 90/10 Rule calculation. Cash receipts from Title IV Programs as a percentage of our total cash receipts were approximately 83% in 2013 and 80% in 2012.

Federal regulations affect the timing of our receipt and disbursements of Title IV Program funds. These regulations require institutions to disburse all Title IV Program funds by payment period. For most of our campuses, the payment period is an academic term. Our campuses generally disburse the first installment of an FDL program loan to a first-year undergraduate student who was a first-time borrower 30 or more days after the student begins his or her education program. We disburse Title IV Program funds to other students enrolled in education programs ten days before the start of each academic term.

During the fourth quarter of 2012, we introduced an institutional scholarship program, called the Opportunity Scholarship, which is intended to help reduce the cost of an ITT Technical Institute education and increase student access to our programs of study. Beginning with the June 2013 academic quarter, the Opportunity Scholarship was being offered to students at all of the ITT Technical Institute campuses. As a result of our institutional scholarships and awards granted in 2013, we received minimal cash payments from private education loan lenders related to our students’ cost of education in 2013.

As an institutional scholarship, in addition to us not receiving any cash payment when amounts are awarded under the Opportunity Scholarship, students are not obligated to make payments to us of amounts awarded under the Opportunity Scholarship and, therefore, the amounts receivable from students to us, as well as our revenue, decreased in 2013, as we began awarding the Opportunity Scholarship at all of our ITT Technical Institute campuses. The Opportunity Scholarships awarded in 2013 and, to a lesser extent, other factors had the effect of reducing our Core Operations revenue per student by approximately 5.0 percent in 2013 compared to 2012.

In the year ended December 31, 2013, we made guarantee payments under the RSAs and Payments on Behalf of Borrowers of $16.6 million and recovered $0.1 million related to the RSAs. We paid $46.0 million in January 2013 to settle the litigation and absolve us from any further guarantee obligations under the 2007 RSA. In March 2014, we paid $40.0 million pursuant to a letter agreement, dated as of March 17, 2014, that we entered into with the trustee under the PEAKS Program and the holders of the PEAKS Senior Debt (the “Letter Agreement”). In accordance with the terms of the Letter Agreement, the $40.0 million is considered to be a payment under the PEAKS Guarantee. See “— Private Education Loan Program Obligations,” for a further discussion of the Letter Agreement.

In addition to the $40.0 million payment, we made guarantee and other payments of $102.1 million and recovered $0.7 million related to the RSAs in the nine months ended September 30, 2014. We estimate that we could make guarantee payments related to the RSAs in the three months ended December 31, 2014 of approximately $67.4 million, which includes the $50.0 million payment we made on October 9, 2014. We believe that recoveries of charged-off loans that we expect to recover in the three months ended December 31, 2014 could be approximately $0.3 million. See “— Private Education Loan Program Obligations” and Note 13 - Debt and Note 16 – Commitments and Contingencies of the Notes to Consolidated Financial Statements, for a further discussion of the RSAs and contingent liabilities.

-70-

The PEAKS Trust’s ability to service the PEAKS Senior Debt is based on payments received from borrowers on the PEAKS Trust Student Loans and collections on the PEAKS Trust Student Loans that have defaulted. To the extent that those payments and collections from borrowers on the PEAKS Trust Student Loans are not sufficient to service the PEAKS Senior Debt, we are required to make payments under the PEAKS Guarantee. Based on various assumptions, including the historical and projected performance and collection of the PEAKS Trust Student Loans, we believe that we will make payments under the PEAKS Guarantee (related to the PEAKS Senior Debt and the other items that we guarantee) of approximately $164.0 million in 2014, approximately $9.2 million in 2015 and approximately $40.8 million in January 2020, when the PEAKS Senior Debt matures.

Our Consolidated Balance Sheet as of December 31, 2013 included the assets and liabilities of the PEAKS Trust. The assets of the PEAKS Trust can only be used to satisfy the obligations of the PEAKS Trust. We have significant payment obligations under the PEAKS Guarantee. See “— Private Education Loan Program Obligations” and Note 16 – Commitments and Contingencies of the Notes to Consolidated Financial Statements, for a further discussion of our obligations under the PEAKS Guarantee.

We made guarantee payments of $4.4 million and recovered $0.7 million related to the 2009 RSA in the nine months ended September 30, 2014, and estimate that we could make guarantee payments of $4.6 million and recover $0.3 million under the 2009 RSA in the three months ended December 31, 2014. See “— Private Education Loan Program Obligations,” for a further discussion of the projected guarantee payments under the 2009 RSA for periods after 2014.

In addition, we are required to submit the ED Letter of Credit in the amount of $79.7 million on or before November 4, 2014. Under the Amended Credit Agreement, the aggregate commitment of the lenders is $135.0 million and the portion of the aggregate commitment that may be used by us for letters of credit is $85.0 million. If, however, we have not caused the issuance of the ED Letter of Credit by November 15, 2014, the aggregate commitments of the lenders will be reduced to $100.0 million. We are required to provide cash collateral in an amount equal to 109% of the face amount of the ED Letter of Credit and in an amount equal to 103% of the face amount of all other letters of credit. See “— Financing,” for a discussion of the Amended Credit Agreement. Based on the required amount of the ED Letter of Credit and other letters of credit outstanding as of the date of this filing, the amount of the cash collateral that we will have to provide is approximately $89.3 million.

Operations. Net cash flows from operating activities decreased $29.9 million to $77.7 million in the year ended December 31, 2013 compared to $107.6 million in the year ended December 31, 2012. The decrease in net cash flows from operating activities was primarily due to a decrease in funds received as a result of lower student enrollments and the $46.0 million payment that we made to settle the litigation and absolve us from any further obligations under the 2007 RSA. The decrease was partially offset by lower income tax and compensation-related payments.

Accounts receivable less allowance for doubtful accounts was $99.5 million as of December 31, 2013 compared to $78.9 million as of December 31, 2012. Days sales outstanding increased 9.1 days to 32.7 days at December 31, 2013 compared to 23.6 days at December 31, 2012. Our accounts receivable balance and days sales outstanding at December 31, 2013 increased primarily due to, in order of significance:

• an increase in internal student financing as a result of a decrease in the amount of funds received from private education loans made to our students by third-party lenders and less than full utilization of the Opportunity Scholarship by our students (see “— Student Financing Update”); and

• to a lesser extent, changes implemented to the Pell program that eliminated multiple awards in a 12-month period and adjusted the lifetime limits, both of which began to impact our students in 2012.

The amount of scholarships and other awards provided to our students increased 158.9% to $172.2 million in 2013 compared to $66.5 million in 2012.

In the year ended December 31, 2012, net cash flows from operating activities decreased $281.1 million to $107.6 million compared to $388.7 million in the year ended December 31, 2011, primarily due to:

• lower student enrollments; and

• a significant decrease in the amount of funds received from private education loans made to our students by third-party lenders (see “—Student Financing Update”).

Investing. In the year ended December 31, 2013, we spent $0.7 million to renovate, expand or construct buildings compared to $1.0 million in 2012 and $4.1 million in 2011.

Capital expenditures, excluding facility and land purchases and facility construction, totaled $4.5 million in 2013, $17.2 million in 2012 and $26.9 million in 2011. These expenditures consisted primarily of classroom and laboratory equipment (such as computers and electronic equipment), classroom and office furniture, software and leasehold improvements.

In the year ended December 31, 2012, approximately $148.0 million of investments, net of purchases during the year, matured or were sold. We did not hold any investments as of December 31, 2013 or 2012. We also spent $7.2 million in 2013 to acquire all of the membership interests of Cable Holdings. See Note 4 – Acquisitions of the Notes to Consolidated Financial Statements, for a more detailed discussion of the acquisition.

-71-

We plan to continue to upgrade and modify, whether by expansion or reduction, the space of our current facilities, and upgrade equipment during 2014. Cash generated from operations is expected to be sufficient to fund our capital expenditure requirements.

Financing. On March 21, 2012, we entered into a credit agreement (the “Credit Agreement”) that provided for a $325.0 million senior revolving credit facility. We entered into amendments to the Credit Agreement on March 31, 2014, May 29, 2014, June 30, 2014 (the “Third Amendment”), July 30, 2014 (the “Fourth Amendment”) and September 15, 2014 (the “Fifth Amendment”), and we entered into a Consent to Credit Agreement, which is effective upon the delivery by us to the lenders of our audited consolidated financial statements included in this Annual Report on Form 10-K (the “Consent”). The Credit Agreement, as so amended and including the Consent, is referred to herein as the “Amended Credit Agreement.” The Amended Credit Agreement has a maturity date of March 21, 2015.

A portion of the borrowings under the Credit Agreement were used to prepay the entire outstanding indebtedness under a prior credit agreement which was terminated on March 21, 2012. In addition to the prepayment of the outstanding indebtedness under the prior credit agreement, borrowings under the Amended Credit Agreement are used for general corporate purposes.

Under the Amended Credit Agreement, the aggregate commitment of the lenders, effective June 30, 2014, is reduced to $135.0 million, and the portion of the commitments available for letters of credit is increased from $25.0 million to $85.0 million. Certain letters of credit in an aggregate amount of approximately $2.4 million previously issued by JPMorgan Chase Bank, N.A. are deemed to be letters of credit issued pursuant to the Amended Credit Agreement. If we have not caused the issuance of the ED Letter of Credit by November 15, 2014, the aggregate commitments of the lenders will be reduced to $100.0 million. In addition, the commitments of the lenders under the Amended Credit Agreement will be reduced to the extent that borrowings are repaid by us using proceeds from certain types of transactions specified in the Fourth Amendment and the Fifth Amendment, as described further below.

Borrowings under the Amended Credit Agreement bear interest, at our option, at the London Interbank Offered Rate (“LIBOR”) plus an applicable margin or at an alternative base rate, as defined under the Amended Credit Agreement, plus an applicable margin. The applicable margin for borrowings under the Amended Credit Agreement is determined based on the ratio of our total Indebtedness (as defined in the Amended Credit Agreement and which primarily includes outstanding borrowings, recorded contingent liabilities related to our guarantee obligations, letters of credit and surety bonds) to EBITDA (as defined in the Amended Credit Agreement) (the “Leverage Ratio”) as of the end of each fiscal quarter. We also pay a commitment fee on the amount of the unutilized commitments under the Amended Credit Agreement. The amount of the commitment fee is determined based on the Leverage Ratio as of the end of each quarter. The effective interest rate on our borrowings was approximately:

• 3.60% per annum in the year ended December 31, 2013;

• 2.40% per annum in the year ended December 31, 2012; and

• 1.20% per annum in the year ended December 31, 2011.

The commitment fee under the Amended Credit Agreement was 0.40% as of December 31, 2013.

In addition to the participation fee required to be paid by us pursuant to the original terms of the Credit Agreement related to letters of credit, which accrues at the same rate used to determine the interest rate applicable to Eurodollar Revolving Loans (as defined in the Amended Credit Agreement), the Fifth Amendment provides that an additional participation fee is required to be paid by us related to the ED Letter of Credit, which will accrue at a ticking fee rate on the average daily amount of the lenders’ letter of credit exposure with respect to the ED Letter of Credit. The ticking fee rate is defined as:

• 0.00% per annum for the period from September 15, 2014 through and including March 21, 2015;

• 1.00% per annum for the period from March 22, 2015 through and including March 21, 2016;

• 2.00% per annum for the period from March 22, 2016 through and including March 21, 2017;

• 3.00% per annum for the period from March 22, 2017 through and including March 21, 2018;

• 4.00% per annum for the period from March 22, 2018 through and including March 21, 2019; and

• 5.00% per annum for the period from March 22, 2019 through November 15, 2019.

        The Amended Credit Agreement contains, among other things, covenants, representations and warranties and events of default customary for credit facilities. We are required to maintain compliance with a maximum Leverage Ratio, a minimum fixed charge coverage ratio, a minimum liquidity amount, and several covenants related to the ED’s regulations. We were in compliance with those covenants as of December 31, 2013, after giving effect to the Third Amendment and the Fourth Amendment. The Third Amendment provides that noncompliance with the Leverage Ratio as of the end of the fiscal quarters ending March 31, 2013, June 30, 2013 and September 30, 2013, and noncompliance with the fixed charge coverage ratio as of the end of the fiscal quarters ending March 31, 2013, June 30, 2013, September 30, 2013, and December 31, 2013 (in each case, before giving effect to the Third Amendment) have been waived by the lenders. In addition, among other things, the Third Amendment, the Fourth Amendment, the Fifth Amendment and the Consent, taken together:

• provided that our consolidated financial statements (and related certificates) as of and for the fiscal year ended December 31, 2013, did not have to be furnished by us to the lenders until October 15, 2014;

• provide that our condensed consolidated financial statements (and related certificates) as of and for the fiscal quarter ended March 31, 2014, do not have to be furnished by us to the lenders until November 15, 2014;

• provide that our condensed consolidated financial statements (and related certificates) as of and for the fiscal quarter ended June 30, 2014, do not have to be furnished by us to the lenders until November 15, 2014;

• provide that our condensed consolidated financial statements (and related certificates) as of and for the fiscal quarter ended September 30, 2014, do not have to be furnished by us to the lenders until December 15, 2014;

• amend certain covenants to allow for the Consolidation beginning on February 28, 2013, and for other factors; and

• waive certain defaults related to our financial reporting.

-72-

The Amended Credit Agreement:

• is secured by a pledge of the equity interests of our subsidiaries;

• is guaranteed by one of our subsidiaries;

• is secured by security interests in substantially all of our personal property and the personal property of the subsidiary guarantor; and

• is secured by the Mortgaged Property.

The Fourth Amendment provides that an event of default under the Amended Credit Agreement will occur, if, among other things, the ED imposes a delay of more than five days in our receipt of Title IV Program funds. The Fifth Amendment provides that an event of default under the Amended Credit Agreement will occur if, among other things, we do not engage a financial advisor acceptable to the administrative agent before November 15, 2014 (or another date not later than December 15, 2014, if acceptable to the administrative agent). Based on our discussions with the administrative agent, we understand that the financial advisor would be retained to assist us in our ongoing efforts to identify and secure alternative financing.

The Fifth Amendment provides that the ED Letter of Credit will not be issued unless we have previously delivered certain real estate due diligence items related to the Mortgaged Property. In addition, the Fifth Amendment allows for the ED Letter of Credit, if issued, to have a term ending not later than November 15, 2019.

Under the Amended Credit Agreement, we are required to provide cash collateral (in an amount equal to 109% of the face amount of the ED Letter of Credit and 103% of the face amount of all other letters of credit) for any letter of credit issued under the Amended Credit Agreement:

• after July 30, 2014, immediately upon issuance, except for the ED Letter of Credit, for which cash collateral is not required, until the earlier of December 31, 2014 or when net cash proceeds are received from certain transactions described in the next paragraph; and

• before July 30, 2014, by the earlier of December 31, 2014 or when net cash proceeds are received from certain transactions described in the next paragraph.

All amounts posted as cash collateral for letters of credit will be treated as cash for purposes of determining our compliance with the minimum liquidity covenant of the Amended Credit Agreement.

Under the Fourth Amendment and the Fifth Amendment, in the event that any net cash proceeds are received by us or a material subsidiary of ours in connection with any sale, transfer, lease or other disposition of the Mortgaged Property, including in connection with any sale and leaseback transaction, any mortgage financing or similar transaction with respect to the Mortgaged Property or the incurrence by us of indebtedness that is not permitted under the Amended Credit Agreement, those net cash proceeds will:

• first, be delivered to the administrative agent in order to cash collateralize all then outstanding letters of credit under the Amended Credit Agreement, until such time as the administrative agent holds cash collateral equal to 109% of the face amount of the ED Letter of Credit and 103% of the face amount of all other letters of credit, or if the ED Letter of Credit has not yet been issued when the net cash proceeds are received, to be held by the administrative agent until the issuance of the ED Letter of Credit and application of the proceeds to cash collateral; and

• second, be used to repay outstanding borrowings under the Amended Credit Agreement, which repayments will be accompanied by a corresponding pro rata reduction of the commitment of each lender under the Amended Credit Agreement.

The Fourth Amendment also implements additional restrictions on us, including, without limitation:

• the exception to the limitation on asset dispositions not otherwise permitted under the Amended Credit Agreement is reduced from $75.0 million in the aggregate during the term of the Amended Credit Agreement to $5.0 million in the aggregate during the period from July 30, 2014 through the remaining term of the Amended Credit Agreement, and all of those asset dispositions must be for fair market value and an adequate cash purchase consideration, as reasonably determined by the administrative agent, provided that those limitations do not apply to an asset disposition of the Mortgaged Property, if that asset disposition generates net cash proceeds of at least 75% of the appraised value of that Mortgaged Property;

• in addition to the existing limitation on sale and leaseback transactions that the net cash proceeds received therefrom may not exceed $125.0 million in the aggregate during the term of the Amended Credit Agreement, any sale and leaseback transaction must be for fair market value and an adequate cash purchase consideration, as reasonably determined by the administrative agent, provided that any sale and leaseback transaction of the Mortgaged Property will be deemed to be for fair market value and an adequate cash purchase consideration, if it generates net cash proceeds of at least 75% of the appraised value of that Mortgaged Property;

• the permitted indebtedness consisting of secured indebtedness at any time outstanding (and not otherwise permitted by the Amended Credit Agreement) is reduced from $25.0 million to $5.0 million in aggregate principal amount; and

• permitted liens to secure indebtedness, obligations and/or liabilities at any one time outstanding (which liens are not otherwise permitted by the Amended Credit Agreement) may not secure debt in excess of $5.0 million in aggregate principal amount, reduced from the original $25.0 million.

-73-

If any collateral is sold in a transaction permitted under the Amended Credit Agreement or is financed by indebtedness permitted under the Amended Credit Agreement, the administrative agent will release the mortgage or other security interest in that collateral.

As of December 31, 2013, the outstanding borrowings under the Amended Credit Agreement totaled $50.0 million and were classified as a current liability, because we believed it was probable that we would not be in compliance with certain covenants under the Amended Credit Agreement during the 12 months following December 31, 2013. If we are not in compliance with one or more covenants and are unable to obtain a waiver of our noncompliance or an amendment to the Amended Credit Agreement that would allow us to be in compliance with those covenants or otherwise not be in default under the Amended Credit Agreement, the lenders would have various remedies, including:

• the lending commitments under the Amended Credit Agreement may be terminated;

• our ability to request the issuance of letters of credit and to obtain amendments, extensions or renewals of letters of credit already issued under the Amended Credit Agreement may be terminated;

• all then outstanding borrowings and other amounts owed under the Amended Credit Agreement may be declared immediately due and payable; and

• we could be required to provide cash collateral (in an amount equal to 109% of the face amount of the ED Letter of Credit and 103% of the face amount of all other letters of credit) for our obligations with respect to any outstanding letters of credit, if that cash collateral has not already been posted.

In the event that we or our subsidiary guarantor do not pay in full, upon demand, all of our outstanding borrowings and other amounts owed under the Amended Credit Agreement or we, or our subsidiary guarantor, do not provide, upon demand, the cash collateral for our letter of credit obligations, the lenders would be entitled to recourse against the collateral security, including the Mortgaged Property, that we and our subsidiary guarantor have provided, in order to obtain payment of amounts we owe or are required to provide as cash collateral.

For the period February 28, 2013 through December 31, 2013, we have consolidated the PEAKS Trust in our consolidated financial statements. See Note 10 – Variable Interest Entities of the Notes to Consolidated Financial Statements, for a further discussion of the Consolidation. In January 2010, the PEAKS Trust issued PEAKS Senior Debt in the aggregate principal amount of $300.0 million to investors. The PEAKS Senior Debt matures in January 2020 and bears interest at a variable rate based on the LIBOR, plus a 550 basis point margin. The minimum LIBOR rate applied to the PEAKS Senior Debt cannot be less than 2.00%. There are no scheduled principal repayment requirements for the PEAKS Senior Debt prior to the January 2020 maturity date. Under the terms of the PEAKS Program documents, however, amounts received on a monthly basis by the PEAKS Trust that exceed the fees and expenses of the PEAKS Trust then due and the interest then due on the PEAKS Senior Debt are to be paid to reduce the outstanding principal balance of the PEAKS Senior Debt. We estimate that the amounts received in 2014 by the PEAKS Trust from PEAKS Trust Student Loan borrowers that could be used to reduce the outstanding principal balance of the PEAKS Senior Debt, will not be material. The assets of the PEAKS Trust (which include, among other assets, the PEAKS Trust Student Loans) serve as collateral for, and are intended to be the principal source of, the repayment of the PEAKS Senior Debt. Payment of the PEAKS Senior Debt may be accelerated by the indenture trustee of the PEAKS Trust or by the holders of the PEAKS Senior Debt in response to certain events of default under the PEAKS Indenture, including, among other things:

• a payment default by the PEAKS Trust;

• a default in the performance or observation of the PEAKS Trust’s covenants, agreements or conditions under the PEAKS Indenture;

• a breach of our obligations under the PEAKS Guarantee; and

• certain bankruptcy events with respect to the PEAKS Trust or us.

An acceleration of the payment of the PEAKS Senior Debt would result in an acceleration of our obligation to pay the full amount of the PEAKS Senior Debt pursuant to the terms of the PEAKS Guarantee, if the PEAKS Trust was not able to make that payment (and we believe that it is unlikely that the PEAKS Trust would be able to make that payment). The acceleration of our obligation to pay the full amount of the PEAKS Senior Debt, and/or our inability to make that payment, could result in cross-defaults under the Amended Credit Agreement.

        The PEAKS Trust must maintain a minimum required Asset/Liability Ratio. The minimum required Asset/Liability Ratio is 1.05/1.00. The applicable required Asset/Liability Ratio as of each monthly measurement date, however, is based on our compliance, as of the prior quarterly measurement date, with certain metrics specified in the PEAKS Program documents, including maximum leverage ratios and minimum liquidity amounts. If we are not in compliance with those metrics as of the end of a fiscal quarter, the required Asset/Liability Ratio increases to 1.40/1.00, until the monthly measurement date following the end of a succeeding quarter at which we are in compliance with those metrics. As a result of the Consolidation and other factors, we were not in compliance with those metrics as of December 31, 2013, and we do not expect to be in compliance with those metrics prior to December 31, 2014.

-74-

If the amount of the assets of the PEAKS Trust does not equal or exceed the outstanding PEAKS Senior Debt by the applicable required Asset/Liability Ratio on a monthly measurement date, we are required to make a payment under the PEAKS Guarantee in an amount that would reduce the outstanding principal balance of the PEAKS Senior Debt to the extent necessary to cause the ratio of the assets of the PEAKS Trust to the resulting outstanding PEAKS Senior Debt to equal or exceed the applicable required Asset/Liability Ratio. See Note 16 – Commitments and Contingencies of the Notes to Consolidated Financial Statements, for a further discussion of the PEAKS Guarantee.

As a consequence of the restatement of our unaudited condensed consolidated financial statements in our Quarterly Reports on Form 10-Q for the fiscal quarters ended March 31, 2013, June 30, 2013 and September 30, 2013, certain quarterly reports that we were required to deliver to the indenture trustee of the PEAKS Trust under the PEAKS Guarantee were inaccurate. We delivered corrected quarterly reports to the indenture trustee on October 9, 2014. If we had delivered accurate quarterly reports, or with respect to periods in 2014 through June 30, 2014, delivered quarterly reports, to the indenture trustee of the PEAKS Trust, we believe the indenture trustee would have made payment demands beginning in April 2013, requiring us to make additional payments under the PEAKS Guarantee totaling approximately $60.3 million in the aggregate, in order to maintain an Asset/Liability Ratio of 1.40/1.00. On October 9, 2014, we made a guarantee payment of $50.0 million, which payment, along with other payments that we have made to the PEAKS Trust in recent months, included amounts that would have become due between April 2013 and September 2014, had we delivered accurate quarterly reports. The delivery of inaccurate quarterly reports constituted a breach of the PEAKS Guarantee and an event of default under the PEAKS Indenture. In the event of a default under the PEAKS Indenture, the payment of the entire amount of the PEAKS Senior Debt could be accelerated, which would trigger our obligation to pay the full amount of the PEAKS Senior Debt pursuant to our obligations under the PEAKS Guarantee, additional remedies could be sought against us and there could be a cross-default under the Amended Credit Agreement, any of which would have a material adverse effect on our results of operations, financial condition and cash flows. We believe that the delivery of the corrected quarterly reports and making the additional guarantee payments satisfied our obligations under the PEAKS Guarantee with respect to these matters and cured the event of default under the PEAKS Indenture. We cannot predict, however, whether the holders of the PEAKS Senior Debt will assert other breaches of the PEAKS Guarantee by us or assert that any breach of the PEAKS Guarantee or event of default under the PEAKS Indenture was not properly cured.

We estimate that we have made, and will make, payments under the PEAKS Guarantee of approximately $159.5 million in the year ending December 31, 2014 to cause the PEAKS Trust to maintain the applicable required Asset/Liability Ratio. That estimated amount includes the:

• $40.0 million that we paid in March 2014 pursuant to the Letter Agreement, which was applied primarily to make a mandatory prepayment of the PEAKS Senior Debt (see Note 10 – Variable Interest Entities of the Notes to Consolidated Financial Statements, for a further discussion of the Letter Agreement);

• payments totaling approximately $51.7 million that we made from July 2014 through September 2014 to satisfy our obligations under the PEAKS Guarantee with respect to the increased minimum required Asset/Liability Ratio in prior periods; and

• $50.0 million that we paid in October 2014, as described in the immediately preceding paragraph.

The amount of the assets of the PEAKS Trust for purposes of computing the Asset/Liability Ratio was $282.0 million as of December 31, 2013 and $211.6 million as of June 30, 2014. The outstanding principal balance of the PEAKS Senior Debt was approximately $255.6 million as of December 31, 2013 and $214.5 million as of June 30, 2014. The carrying value of the PEAKS Senior Debt as was approximately $229.2 million as of December 31, 2013 and $190.9 million as of June 30, 2014. We recorded $157.9 million of the total carrying value of the PEAKS Senior Debt as a current liability as of December 31, 2013, which represented our estimate of the amount of the carrying value that would have been due in the 12 months following December 31, after giving consideration to the effects of the restatement, as described above. The PEAKS Senior Debt was recorded on our consolidated balance sheet as of February 28, 2013 at its estimated fair value on that date, which was approximately $226.1 million. The outstanding principal balance of the PEAKS Senior Debt as of February 28, 2013 was approximately $257.5 million. The $31.4 million difference between the estimated fair value and the outstanding principal balance of the PEAKS Senior Debt as of February 28, 2013 was recorded as an accrued discount on our consolidated balance sheet and will be recognized as Interest expense in our Consolidated Statements of Income using an effective interest rate method over the term of the PEAKS Senior Debt. The effective interest rate on the PEAKS Senior Debt was approximately 9.90% per annum in the year ended December 31, 2013. We recognized interest expense on the PEAKS Senior Debt of $21.3 million in the year ended December 31, 2013, which included approximately $4.9 million of discount accretion.

-75-

Under the Repurchase Program, our Board of Directors has authorized us to repurchase shares of our common stock in the open market or through privately negotiated transactions in accordance with Rule 10b-18 of the Exchange Act. The following table sets forth our share repurchase activity in the periods indicated:

	Year Ended December 31,
	2013		2012			2011
Repurchase authorization at beginning of period		7,771,025		5,796,725			4,836,725
Additional repurchase authorization		0		5,000,000			5,000,000
Number of shares repurchased		0		(3,025,700	)		(4,040,000	)
Repurchase authorization at end of period		7,771,025		7,771,025			5,796,725
Total cost of shares repurchased (in millions)	$	0.0	$	207.9		$	282.7
Average cost per share	$	0.00	$	68.72		$	69.98

Approximately 7.8 million shares remained available for repurchase under the Repurchase Program as of December 31, 2013.

There were no proceeds from the exercise of stock options in the year ended December 31, 2013 compared to $8.4 million in the year ended December 31, 2012 and $5.6 million in the year ended December 31, 2011. Excess tax benefits from the exercise of stock options were $0.0 million in the year ended December 31, 2013 compared to $1.4 million in the year ended December 31, 2012 and $1.2 million in the year ended December 31, 2011.

Based on our current projections, we believe that cash generated from operations will be sufficient for us to satisfy our RSA payments, letters of credit cash collateralization, working capital, loan repayment and capital expenditure requirements over the 12-month period following the date that this Annual Report on Form 10-K was filed with the SEC. We also believe that any reduction in cash and cash equivalents that may result from their use to make payments under the RSAs, provide cash collateral for letters of credit, construct facilities or repay loans will not have a material adverse effect on our expansion plans, planned capital expenditures, ability to meet any applicable regulatory financial responsibility standards or ability to conduct normal operations over the 12-month period following the date that this Annual Report on Form 10-K was filed with the SEC. Our projections, however, are estimates, which are based on numerous assumptions and, therefore, may not prove to be accurate or reliable and involve a number of risks and uncertainties.

Student Financing Update. During the fourth quarter of 2012, we introduced an institutional scholarship program, called the Opportunity Scholarship, which is intended to help reduce the cost of an ITT Technical Institute education and increase student access to our programs of study. As of June 30, 2013, the Opportunity Scholarship was being offered to students at all of the ITT Technical Institute campuses. We believe that the Opportunity Scholarship has and will continue to reduce our students’ need and use of private education loans, as well as decrease the internal student financing that we provide to our students. As an institutional scholarship, our revenue is reduced by the amount of the Opportunity Scholarship awarded. In addition, no cash payments are received and students are not obligated to make payments to us of the amounts awarded under the Opportunity Scholarship. We believe that the amounts receivable from students to us will decrease in future periods as more students utilize the Opportunity Scholarship, instead of internal student financing.

Our revenue decreased in the year ended December 31, 2013 compared to the prior year, partially as a result of the increase in institutional scholarships and awards provided to our students. As a result of the increase in institutional scholarships and awards, our revenue decreased $108.3 million in the year ended December 31, 2013 compared to the year ended December 31, 2012. The increase in institutional scholarships and awards in the year ended December 31, 2013 was primarily due to the introduction of the Opportunity Scholarship at the vast majority of the ITT Technical Institute campuses in the academic quarter than began in March 2013.

We believe that the amount of institutional scholarships that we expect to award in 2014, and, to a lesser extent, other factors will have the effect of reducing our Core Operations revenue per student in 2014 compared to 2013.

In 2013 and 2012, we increased the amount of internal student financing that we provided to our students. The internal student financing that we provide to our students consists of non-interest bearing, unsecured credit extended to our students and is included in Accounts receivable, net on our Consolidated Balance Sheets. As of December 31, 2013, our accounts receivable less allowance for doubtful accounts increased $20.6 million, or 26.1%, to $99.5 million compared to $78.9 million as of December 31, 2012, primarily due to:

• the increase in the amount of internal financing that we provided to our students since the private education loan programs expired in 2011; and

• less than full utilization of the Opportunity Scholarship by our students.

The internal student financing provided to a student is generally due and payable by the student at the end of the student’s academic year (which is generally nine months) or enrollment, whichever occurs first. Both the delay in our receipt of internal student financing payments compared to our receipt of private education loan proceeds and the increased amount of internal student financing that we provide to our students have negatively impacted our liquidity and cash flows from operating activities. The increased amount of internal student financing that we have provided to our students has also exposed us to greater credit risk. In addition, we have the risk of collection with respect to our internal student financing which resulted in an increase in our bad debt expense as a percentage of revenue in the year ended December 31, 2013 to 6.3% compared to 4.4% in the year ended December 31, 2012. The 10.5-day increase in our days sales outstanding to 34.3 days at December 31, 2013 compared to 23.8 days at December 31, 2012 was primarily attributable to:

• the increase in internal student financing caused by a decrease in the amount of funds received from private education loans made to our students by third-party lenders and less than full utilization of the Opportunity Scholarship by our students; and

• to a lesser extent, changes implemented to the Pell program that eliminated multiple awards in a 12-month period and adjusted the lifetime limits, both of which began to impact our students in 2012.

-76-

We plan to continue offering the Opportunity Scholarship and other scholarships which we believe will reduce the amount of internal student financing that we provide to our students. The increased use of institutional scholarships and awards by our students and any additional internal student financing provided to our students could result in a continuation of the adverse factors that are described above, including a material adverse effect on our financial condition and cash flows.

Contractual Obligations

The following table sets forth the specified contractual obligations as of December 31, 2013:

	Payments Due by Period
Contractual Obligations	Total		Less than 1 Year		1-3 Years		3-5 Years		More than 5 Years
	(In thousands)
Operating lease obligations	$	156,047	$	44,714	$	66,521	$	32,366	$	12,446
Debt under Amended Credit Agreement (a)		53,296		2,474		50,822		0		0
PEAKS Trust senior debt(b)		295,338		176,907		36,277		26,523		55,631
Claims and contingencies-2009 RSA(c)		130,847		9,009		30,311		91,527		0
Total	$	635,528	$	233,104	$	183,931	$	150,416	$	68,077

(a) The Debt under Amended Credit Agreement represents the borrowings under the Amended Credit Agreement and assumes that the $50.0 million outstanding balance under the Amended Credit Agreement as of December 31, 2013 will be outstanding at all times through the date of maturity. The amounts shown include the principal payments that will be due upon maturity as well as interest payments and commitment fees. Interest payments and commitment fees have been calculated based on their scheduled payment dates using the interest rate charged on our borrowings and the rate charged on unutilized commitments as of December 31, 2013.

(b) The PEAKS Trust senior debt represents the PEAKS Senior Debt issued by the PEAKS Trust. Beginning on February 28, 2013, the PEAKS Trust was consolidated in our consolidated financial statements, and the PEAKS Senior Debt was included on our Consolidated Balance Sheet as of December 31, 2013. There is no separate liability recorded on our Consolidated Balance Sheet as of December 31, 2013 for the PEAKS Guarantee, because this liability was eliminated upon the Consolidation. We do, however, have significant payment obligations under the PEAKS Guarantee, as further discussed under “—Private Education Loan Program Obligations.” See also Note 10 – Variable Interest Entities and Note 16 – Commitments and Contingencies of the Notes to Consolidated Financial Statements, for additional information on the PEAKS Guarantee and the Consolidation. The assets of the PEAKS Trust serve as collateral for, and are intended to be the principal source of, the repayment of the PEAKS Senior Debt. There are no scheduled principal repayment requirements for the PEAKS Senior Debt prior to the January 2020 maturity date. The amounts shown in the above table represent our estimate of the total PEAKS Senior Debt interest and principal payments that may be made by the PEAKS Trust in the periods indicated. We estimated the interest due on the PEAKS Senior Debt in each of the periods based on our estimate of the outstanding balance of the PEAKS Senior Debt during those periods. Interest payments have been calculated using the interest rate charged on the PEAKS Senior Debt as of December 31, 2013. We estimated the amount of PEAKS Senior Debt principal payments in each of the periods based on an estimate of the excess cash flows generated by the PEAKS Trust. Cash flows generated by the PEAKS Trust in any month that exceed the amounts needed to pay various administrative fees and expenses and the interest due on the PEAKS Senior Debt for the month must be applied to reduce the outstanding balance on the PEAKS Senior Debt. We also considered whether any payments would be required to be made under the PEAKS Guarantee in order to maintain the required Asset/Liability Ratio. Payments made under the PEAKS Guarantee to maintain the required Asset/Liability Ratio reduce the amount of the outstanding PEAKS Senior Debt and have been included as principal payments in the above table. In order to estimate the PEAKS Senior Debt interest and principal payments shown above, we made certain assumptions regarding the timing and amount of the cash flows generated by the PEAKS Trust. The cash flows of the PEAKS Trust are dependent on the performance of the PEAKS Trust Student Loans and, therefore, are subject to change. See Note 10 – Variable Interest Entities, Note 13 – Debt and Note 16 – Commitments and Contingencies of the Notes to Consolidated Financial Statements, for a further discussion of the PEAKS Senior Debt and PEAKS Guarantee.

(c) The $130.8 million in the Claims and contingencies-2009 RSA line item represents our estimate of the amounts that we believe we will pay in the periods indicated related to our guarantee obligations under the 2009 RSA. These estimated amounts were included in our calculation of the amount to record as contingent liabilities, as were estimated collections from charged-off loans. Our contingent liability for the 2009 RSA includes the total estimated payments and estimated recoveries, net of a $9.0 million discount representing the time value of money, and was included in Other current liabilities

-77-

and Other liabilities on our Consolidated Balance Sheet as of December 31, 2013. The amounts shown in the table do not include amounts from the recovery of charged-off loans under the 2009 Loan Program, which we estimate could be approximately $5.0 million and paid to us over the seven year period following December 31, 2013. See Note 16 – Commitments and Contingencies of the Notes to Consolidated Financial Statements, for additional information on the 2009 RSA. The timing and amount of the estimated payments shown in the above table were based on various assumptions and, therefore, are subject to change.

The table above does not reflect unrecognized tax benefits of $22.3 million and accrued interest related to unrecognized tax benefits of $6.4 million, because we cannot reasonably predict the timing of the resolution of the related tax positions beyond 2014. See Note 14 – Income Taxes of the Notes to Consolidated Financial Statements, for additional information on the unrecognized tax benefits as of December 31, 2013.

Off-Balance Sheet Arrangements

As of December 31, 2013, we leased our non-owned facilities under operating lease agreements. A majority of the operating leases contain renewal options that can be exercised after the initial lease term. Renewal options are generally for periods of one to five years. All operating leases will expire over the next 10 years and management believes that:

• those leases will be renewed or replaced by other leases in the normal course of business;

• we may purchase the facilities represented by those leases; or

• we may purchase or build other replacement facilities.

There are no material restrictions imposed by the lease agreements, and we have not entered into any significant guarantees related to the leases. We are required to make additional payments under the terms of certain operating leases for taxes, insurance and other operating expenses incurred during the operating lease period.

As part of our normal course of operations, one of our insurers issues surety bonds for us that are required by various education authorities that regulate us. We are obligated to reimburse our insurer for any of those surety bonds that are paid by the insurer. As of December 31, 2013, the total face amount of those surety bonds was approximately $19.3 million. As of December 31, 2013, we also had issued approximately $2.2 million of letters of credit to our workers’ compensation insurers.

As of December 31, 2013, we concluded that we were not required to consolidate the 2009 Entity in our consolidated financial statements. Based on preliminary loan performance data as of September 30, 2014 that we have received regarding the private education loans made under the 2009 Loan Program, however, we believe that, as of September 30, 2014, the 2009 Loan Program Servicer may not have met the performance criteria specified in the 2009 Servicing Agreement. As a result, it appears likely that the 2009 Loan Program Servicer either has failed, or within the foreseeable future will fail, to meet the performance criteria in the 2009 Servicing Agreement. Once that occurs, following a cure period and that assuming that no cure occurs, we will have the right to terminate the 2009 Servicing Agreement. As a result of that right, we will be required to consolidate the 2009 Entity into our consolidated financial statements. We believe that our right to terminate the 2009 Servicing Agreement will become operative in late 2014 or early 2015. At this time, we are unable to quantify the impact of the consolidation of the 2009 Entity into our consolidated financial statements, but it could have a material adverse effect on our consolidated financial statements. See “Risk Factors –Risks Related to Recent Developments –We believe that we will be required to consolidate the 2009 Entity into our consolidated financial statements in the foreseeable future, which could have a material adverse effect on our consolidated financial statements and our compliance with covenants and metrics to which we are subject,” “—Private Education Loan Program Obligations” and Note 10 – Variable Interest Entities and Note 16 – Commitments and Contingencies of the Notes to Consolidated Financial Statements.

Private Education Loan Program Obligations

On January 20, 2010, we entered into the PEAKS Guarantee in connection with the PEAKS Program. We entered into the PEAKS Program to offer our students another source of private education loans that they could use to help pay their education costs owed to us and to supplement the limited amount of private education loans available to our students under other private education loan programs, including the 2009 Loan Program. Under the PEAKS Program, our students had access to a greater amount of private education loans, which resulted in a reduction in the amount of internal financing that we provided to our students in 2010 and 2011. No new private education loans were or will be originated under the PEAKS Program after July 2011, but immaterial amounts related to loans originated prior to that date were disbursed by the lender through March 2012.

Under the PEAKS Program, an unrelated lender originated private education loans to our eligible students and, subsequently, sold those loans to the PEAKS Trust. The PEAKS Trust issued the PEAKS Senior Debt to investors. The lender disbursed the proceeds of the private education loans to us for application to the students’ account balances with us that represented their unpaid education costs. We transferred a portion of the amount of each private education loan disbursed to us under the PEAKS Program to the PEAKS Trust in exchange for the Subordinated Note. The Subordinated Note does not bear interest, and principal is due on the Subordinated Note following:

• the repayment of the PEAKS Senior Debt;

• the payment of fees and expenses of the PEAKS Trust; and

• the reimbursement of the amount of any payments made by us under the PEAKS Guarantee, other than Payments on Behalf of Borrowers.

-78-

The PEAKS Trust utilized the proceeds from the issuance of the PEAKS Senior Debt and the Subordinated Note to purchase the student loans from the lender.

Under the PEAKS Guarantee, we guarantee payment of the principal and interest owed on the PEAKS Senior Debt, the administrative fees and expenses of the PEAKS Trust and a minimum required Asset/Liability Ratio. The PEAKS Guarantee contains, among other things, representations and warranties and events of default that we believe are customary for guarantees of this type. In addition, under the PEAKS Program, some or all of the holders of the PEAKS Senior Debt could require us to purchase their PEAKS Senior Debt, if the law is changed to reduce the maximum allowable percentage of our annual revenue derived from Title IV Program funds from 90% to 75% or less. At this time, we believe that the likelihood of such a change in the law is remote.

Our guarantee and purchase obligations under the PEAKS Program remain in effect until the PEAKS Senior Debt and the PEAKS Trust’s fees and expenses are paid in full. At such time, we will be entitled to repayment of the amount of any payments we made under the PEAKS Guarantee (which do not include Payments on Behalf of Borrowers) to the extent that funds remain in the PEAKS Trust.

We concluded that we were required to consolidate the PEAKS Trust in our consolidated financial statements beginning on February 28, 2013. See Note 10 – Variable Interest Entities of the Notes to Consolidated Financial Statements, for a further discussion of the Consolidation. As a result, the assets and liabilities of the PEAKS Trust have been included on, and all intercompany transactions have been eliminated from, our Consolidated Balance Sheet as of December 31, 2013. While we no longer record a contingent liability for the PEAKS Guarantee on our consolidated balance sheet beginning on February 28, 2013, our obligations under the PEAKS Guarantee remain in effect.

The amount of future payments that we could be required to make under the PEAKS Guarantee will be affected by:

• the repayment performance of the PEAKS Trust Student Loans, the proceeds from which will be used to repay the PEAKS Senior Debt and to pay the fees and expenses of the PEAKS Trust, and the performance of which also affects the Asset/Liability Ratio;

• the fact that those loans will consist of a large number of loans of individually immaterial amounts;

• the fact that the interest rate on the PEAKS Senior Debt is a variable rate based on the LIBOR plus a margin; and

• the amount of fees and expenses of the PEAKS Trust, much of which is based on the principal balance of the PEAKS Trust Student Loans.

Beginning in the fourth quarter of 2012 and continuing through the first quarter of 2014, we made Payments on Behalf of Borrowers in connection with the PEAKS Program. We made Payments on Behalf of Borrowers to avoid defaults by those borrowers on their PEAKS Trust Student Loans, which defaults would have triggered much larger contractually required payments by us under the PEAKS Guarantee. We made Payments on Behalf of Borrowers after assessing:

• the likelihood of us being contractually required to make payments under the PEAKS Guarantee in the near future;

• the effect on our liquidity that would result from making payments under the PEAKS Guarantee compared to making Payments on Behalf of Borrowers;

• the effect that Payments on Behalf of Borrowers may have on the funds available to the PEAKS Trust to repay the Subordinated Note to us following full payment of the PEAKS Trust’s other obligations; and

• the fact that we will not be able to recover Payments on Behalf of Borrowers from the PEAKS Trust or the student borrowers on whose behalf we made those payments.

Payments on Behalf of Borrowers assisted in:

• maintaining the required Asset/Liability Ratio; and

• satisfying the following month’s required payment of interest on the PEAKS Senior Debt and administrative fees and expenses of the PEAKS Trust.

In March 2014, we entered into the Letter Agreement in order to resolve differing interpretations of the permissibility of the Payments on Behalf of Borrowers under the PEAKS Program documents. Pursuant to the Letter Agreement, the trustee agreed to waive, and the holders of the PEAKS Senior Debt consented to the waiver of, any:

• breach of the PEAKS Program documents caused by us making Payments on Behalf of Borrowers, including any failure to make payments under the PEAKS Guarantee as a result thereof; and

• event of default under the PEAKS Program documents that may have arisen or resulted by us making Payments on Behalf of Borrowers.

-79-

In the Letter Agreement, we agreed, after the date of the Letter Agreement, not to make any further payments of any kind on behalf of any borrower in respect of a private education loan made under the PEAKS Program. In accordance with the terms of the Letter Agreement, we paid $40.0 million on March 20, 2014, which is considered to be a payment under the PEAKS Guarantee and was applied primarily to make a mandatory prepayment of the PEAKS Senior Debt.

We believe that it is probable that we will make additional payments under the PEAKS Guarantee and estimate that those payments may be approximately $164.0 million in 2014, $9.2 million in 2015 and $40.8 million in 2020. The vast majority of these payments are expected to reduce the outstanding principal balance of the PEAKS Senior Debt, which would result in an outstanding principal balance of the PEAKS Senior Debt of approximately $94.4 million as of December 31, 2014 and $0.0 million as of January 31, 2020. See Note 13 – Debt and Note 16 – Commitments and Contingencies of the Notes to Consolidated Financial Statements, for a further discussion of the Asset/Liability Ratio. After the PEAKS Senior Debt matures in January 2020, the PEAKS Trust will continue to collect on student loans that remain in repayment as well as recoveries from charged-off loans and the only obligations of the PEAKS Trust at that time will be the fees and expenses of the PEAKS Trust. As a result, we believe that, after that time, we may recover from the PEAKS Trust, in the aggregate, approximately $49.6 million of the amount that we have paid or will pay under the PEAKS Guarantee. See below for information regarding the assumptions on which those estimates are based. Included in the estimated amount to be paid in 2014 are:

• the $40.0 million payment we made in March 2014 pursuant to the Letter Agreement, which is considered to be a payment under the PEAKS Guarantee;

• payments totaling approximately $51.7 million that we made from July 2014 through September 2014 to satisfy our obligations under the PEAKS Guarantee with respect to the increased minimum required Asset/Liability Ratio in prior periods; and

• the $50.0 million payment we made in October 2014 to satisfy our obligation under the PEAKS Guarantee with respect to the increased minimum required Asset/Liability Ratio in prior periods.

On February 20, 2009, we entered into the 2009 RSA in connection with the 2009 Loan Program. Under the 2009 RSA, we guarantee the repayment of the principal amount (including capitalized origination fees) and accrued interest payable on any private education loans made under the 2009 Loan Program that are charged off above a certain percentage of the private education loans made under the 2009 Loan Program, based on the annual dollar volume. The total initial principal amount of private education loans that the 2009 Entity purchased under the 2009 Loan Program was approximately $141.0 million. No new private education loans were or will be originated under the 2009 Loan Program after December 31, 2011, but immaterial amounts related to loans originated prior to that date were disbursed by the lender through June 2012. Our obligations under the 2009 RSA will remain in effect, until all private education loans made under the 2009 Loan Program are paid in full or charged off. The standard repayment term for a private education loan made under the 2009 Loan Program is ten years, with repayment generally beginning six months after a student graduates or three months after a student withdraws or is terminated from his or her program of study.

Under the 2009 RSA, we have the right to elect to make Discharge Payments with respect to private education loans made under the 2009 Loan Program that have been charged off. The effect of making a Discharge Payment related to a private education loan is to reduce the aggregate amount that we may have to pay under our guarantee obligations with respect to that loan. We have claimed as an offset against the Revolving Note amounts that would have the effect of discharging our obligations with respect to certain charged off loans under the 2009 RSA. In addition, in the three months ended December 31, 2013, we made Discharge Payments to the 2009 Entity. We may continue to make Discharge Payments in future periods, if we believe that doing so would be economically beneficial to us. Making Discharge Payments may result in us paying amounts to the 2009 Entity in advance of when a guarantee payment would be due, which would negatively impact our liquidity in a particular period, but may result in us paying a lesser amount than we otherwise would have been required to pay under our guarantee obligations in future periods under the 2009 RSA. See Note 10 – Variable Interest Entities of the Notes to Consolidated Financial Statements, for a further discussion of Discharge Payments.

We believe that it is probable that we will make additional payments under the 2009 RSA. The following table sets forth the estimated amount of Regular Payments and Discharge Payments that we expect to pay and the estimated amounts of recoveries from charged-off loans that we expect to be paid to us by the 2009 Entity in the periods indicated:

Year	Estimated Regular Payments		Estimated Discharge Payments		Estimated Total Payments		Estimated Recoveries
	(Amounts in thousands)
2014	$	9,009	$	0	$	9,009	$	(1,011	)
2015		14,251		0		14,251		(1,200	)
2016		16,060		0		16,060		(1,200	)
2017		16,333		0		16,333		(1,200	)
2018 and later		0		75,194		75,194		(300	)
	$	55,653	$	75,194	$	130,847	$	(4,911	)

-80-

We believe that the vast majority of the $75.2 million of payments estimated to be paid after 2017 will be made by us in 2018. The estimated future payment amounts and timing related to the 2009 RSA assume, among other factors, that we do not make any Discharge Payments until 2018 and do make Discharge Payments to the fullest extent possible in 2018 and later years. If we do not make the Discharge Payments as assumed in 2018 and later years, we estimate that we would make approximately $97.4 million of Regular Payments in 2018 through 2027. Of this amount, approximately $15.1 million to $16.4 million would be paid annually in each of 2018 through 2022, and approximately $16.6 million, in the aggregate, would be paid in 2023 through 2027. See Note 16 – Commitments and Contingencies of the Notes to Consolidated Financial Statements, for a further discussion of the 2009 RSA.

The estimated future payment amounts, the estimated timing of those payments and the estimated amount of recoveries with respect to the RSAs discussed above and elsewhere in this Annual Report on Form 10-K are only estimates, are based on numerous assumptions and are subject to change. As with any estimate, as facts and circumstances change, the estimated amounts and timing could change. We made a number of assumptions in preparing the estimates, which assumptions may not be correct. The assumptions included, among other things, the following:

• the repayment performance of the private education loans made under the applicable private education loan program;

• the timing and rate at which those private education loans will be paid;

• the changes in the variable interest rates applicable to those private education loans and, with respect to the PEAKS Program, the PEAKS Senior Debt;

• the amounts and timing of collections in the future on those private education loans that have been charged off;

• the fees and expenses associated with servicing those private education loans; and

• our ability to utilize the available options for payment of our obligations under the 2009 RSA.

If we are required to pay amounts that exceed the amounts that we estimated could be due under the RSAs, we may not have cash and other sources of funds sufficient to pay those amounts. Failure to make the required payments:

• would constitute a default under the applicable program documents;

• could potentially result in cross-defaults under the Amended Credit Agreement; and

• could have a material adverse effect on our compliance with the regulations of the ED, SAs and ACs and other agencies that regulate us.

In addition, payments that we do make under the RSAs will reduce the cash we have available to use for other purposes. If we are required to pay material amounts under the RSAs, it could have a material adverse effect on our financial condition, results of operations and cash flows.

Pursuant to the 2009 RSA, we are required to maintain collateral to secure our guarantee obligation in an amount equal to a percentage of the outstanding balance of the private education loans disbursed to our students under the 2009 Loan Program. As of December 31, 2013 and 2012, the total collateral maintained in a restricted bank account was approximately $8.6 million. This amount was included in Other assets on our Consolidated Balance Sheets as of each of those dates. The 2009 RSA also requires that we comply with certain covenants, including that we maintain certain financial ratios which are measured on a quarterly basis and deliver compliance certificates on a quarterly basis setting forth the status of our compliance with those financial ratios. If we are not in compliance with those covenants at the end of each fiscal quarter, we are required to increase the amount of collateral maintained in the restricted bank account to a predetermined amount, until the end of a succeeding quarter at which we are in compliance with those covenants. The predetermined amount is based on the percentage of the aggregate principal balance of the private education loans made under the 2009 Loan Program that exceeds a certain percentage as of the end of each fiscal quarter. We were not in compliance with those covenants as of December 31, 2013.

As a consequence of the restatement of our unaudited condensed consolidated financial statements in our Quarterly Reports on Form 10-Q for the fiscal quarters ended March 31, 2013, June 30, 2013 and September 30, 2013, certain quarterly compliance certificates that we were required to deliver to the 2009 Entity under the 2009 RSA were inaccurate. Those inaccuracies did not affect our compliance with the financial ratio covenants in the 2009 RSA as of March 31, 2013. We were not, however, in compliance with the financial ratio covenants in the 2009 RSA as of June 30, 2013 and subsequent measurement dates. Further, due to our failure to timely file our Annual Report on Form 10-K for the fiscal year ended December 31, 2013 and our Quarterly Reports on Form 10-Q for the fiscal quarters ended March 31, 2014 and June 30, 2014, we did not timely deliver the required compliance certificates under the 2009 RSA with respect to those periods. As a result of our noncompliance with the financial ratio covenants as of June 30, 2013 and subsequent measurement dates, the amount of collateral required to be maintained in the restricted bank account has been increased by approximately $2.6 million. We intend to make in October 2014 a deposit in that amount to the restricted bank account to be held as additional collateral under the 2009 RSA.

-81-

We are entitled to all amounts that the 2009 Entity recovers from loans in a particular loan pool made under the 2009 Loan Program that have been charged off, until all payments that we made under the 2009 RSA with respect to that loan pool have been repaid to us by the 2009 Entity. The following table sets forth the approximate aggregate amount of guarantee payments, Discharge Payments and Payments on Behalf of Borrowers that we made related to the PEAKS Program and 2009 RSA and the amount of recoveries from charged-off loans paid to us by the 2009 Entity, in the periods indicated:

Type of Payment (Receipt)	January 1, 2013 Through February 28, 2013 (1)(2)		March 1, 2013 Through December 31, 2013 (1)(2)		Total Year Ended December 31, 2013			Year Ended December 31, 2012
	(In thousands)
Guarantee:
PEAKS Program	$	854	$	1,559	$	2,413		$	12,342
2009 RSA Regular Payments		0		0		1,791			1,990
2009 RSA Discharge Payments		0		0		912			0
Payments on Behalf of Borrowers		532		10,967		11,499			2,762
2009 RSA-Recoveries from Charged-Off Loans		0		0		(103	)		(234	)
Total	$	1,386	$	12,526	$	16,512		$	16,860

⁽¹⁾  We have provided separate columns showing the payment amounts prior to and after the Consolidation, because all transactions with the PEAKS Trust were eliminated from our consolidated financial statements after the Consolidation. Cash payments were, however, made by us throughout the periods indicated, including the periods after the Consolidation.

⁽²⁾  The 2009 RSA payments are made to, and recoveries are received from, the 2009 Entity. The 2009 Entity was not consolidated in our consolidated financial statements and, therefore, separate disclosure of amounts paid or received before and after the February 28, 2013 date of Consolidation is not applicable.

In the fiscal year ended December 31, 2013, we also offset $9.1 million owed by us under the 2009 RSA against amounts owed to us by the 2009 Entity under the Revolving Note, instead of making additional payments in that amount. See below for a further discussion of the offset. Approximately $6.8 million of the amount that we claimed as an offset against the Revolving Note in the fiscal year ended December 31, 2013 represented Discharge Payments. We recorded all of the amounts claimed as offsets in Other current liabilities on our Consolidated Balance Sheet as of December 31, 2013. In the year ended December 31, 2013, the 2009 Entity did not remit to us $0.6 million of recoveries from charged-off loans that were owed to us. We recorded all of the amounts owed to us from the 2009 Entity for recoveries from charged-off loans in Prepaid expenses and other current assets on our Consolidated Balance Sheet as of December 31, 2013.

In the first quarter of 2013, we notified the 2009 Entity that:

• we had determined that the 2009 Entity was in default of its obligations to us under the loan and security agreement pursuant to which the Revolving Note was issued (the “2009 Loan Agreement”);

• as a result of that default, all amounts under the Revolving Note were immediately due and payable; and

• we would not make payments under the 2009 RSA until we received credit for the full amount due us under the Revolving Note, based on the provisions of the 2009 Loan Agreement and the 2009 RSA that allow us to set off amounts owed by us under the 2009 RSA against amounts owed to us by the 2009 Entity under the Revolving Note.

At that time, the outstanding amount of the Revolving Note due to us was approximately $8.2 million, representing principal and accrued interest. In response to our notification, the 2009 Entity:

• denied that it had defaulted under the 2009 Loan Agreement and, therefore, our ability to accelerate the payment of the Revolving Note; and

• refused our demand to immediately pay the Revolving Note in full.

As a consequence, over the period from February 2013 through August 2013, we offset our then current payment obligations under the 2009 RSA and the amount of Discharge Payments we elected to make during that period against all of the 2009 Entity’s obligations owed to us under the Revolving Note (the “Offset”).

We understand that the 2009 Entity’s position is that the Offset was improper, because:

• it has not defaulted under the 2009 Loan Agreement; and

• even if it had defaulted under the 2009 Loan Agreement, the assets of the 2009 Entity against which we could offset or exercise our other remedies, were limited.

We further understand the 2009 Entity’s position to be that, because the Offset was improper, we are in default under the 2009 RSA. In April 2013, the 2009 Entity notified us that it had taken control of the restricted account containing the cash collateral that we deposited to secure our obligations under the 2009 RSA (the “Collateral”). At that time, the amount of funds in that account was approximately $8.6 million. To our knowledge, the 2009 Entity has taken no further action related to the Collateral. We believe that our good faith exercise of our right of offset provided for in the 2009 Loan Agreement and the 2009 RSA does not constitute an event of default under the 2009 RSA, and that the 2009 Entity’s seizure of control of the restricted account containing the Collateral constitutes an additional default by the 2009 Entity. We cannot assure you, however, that the Offset will ultimately be determined to have been proper. In the event of a default by us under the 2009 RSA related to the Offset, we may

-82-

be required to pay to the 2009 Entity approximately $8.6 million, representing the amount of the Offset, net of approximately $0.5 million of recoveries from charged-off loans that are owed, but have not been paid, to us. If the 2009 Entity instead were to withdraw Collateral in that amount from the restricted bank account, we would be required to deposit that amount of cash in the account to maintain the required level of Collateral.

Under the 2007 RSA, we guaranteed the repayment of private education loans made by a lender to our students in 2007 and early 2008 that the lender charged off above a certain percentage of the total dollar volume of private education loans made under the 2007 RSA. The 2007 RSA was terminated effective February 22, 2008, and no private education loans have been or will be made under the 2007 RSA after that date. Based on information that we received from the lender, we believe that the total original principal amount of private education loans made under the 2007 RSA, net of amounts refunded under those loans, was approximately $180.0 million. We settled all of our guarantee obligations under the 2007 RSA through a payment of $46.0 million in January 2013.

At the end of each reporting period, we assess whether we should recognize a contingent liability related to our guarantee obligations under the 2009 RSA (and, prior to February 28, 2013, the PEAKS Guarantee) and, if so, in what amount. As with any assessment, as facts and circumstances change, the recorded liability could change, and has changed, significantly. In order to make this assessment, we made certain assumptions with respect to the performance of the private education loans made under the 2009 Loan Program (and, prior to February 28, 2013, the PEAKS Program) over the life of those loans. The life of a private education loan made under the 2009 Loan Program or PEAKS Program may be in excess of ten years and those assumptions included, among other things:

• the repayment performance of the private education loans made under the 2009 Loan Program (and, prior to February 28, 2013, the PEAKS Program);

• the timing and rate at which those private education loans will be paid;

• the changes in the variable interest rates applicable to those private education loans (and, prior to February 28, 2013, the PEAKS Senior Debt);

• the amounts and timing of collections that will be collected in the future on those private education loans that have defaulted;

• prior to February 28, 2013, the fees and expenses associated with servicing the PEAKS Trust Student Loans; and

• our ability to utilize the available options for payment of our obligations under the 2009 RSA.

We consulted with third-party consumer credit consulting firms in arriving at our assumptions. The assumptions have changed, and may continue to change, significantly over time as actual results become known. The principal factor that we review is the repayment performance of the private education loans made under the 2009 Loan Program. In determining the estimated default rate used in the assumptions to establish our contingent liability for our guarantee obligations under the 2009 RSA, we considered the payment performance of the private education loans made under the 2009 Loan Program. As each portfolio of private education loans matures, additional data related to the performance of the loans and other information regarding the loans becomes available to us that we utilize to estimate the related contingent liability. In certain prior reporting periods, there have been disruptions in the servicing of a portion of the private education loans made under the 2009 Loan Program, which we believe had a negative impact on the repayment performance of those private education loans. We cannot predict with any certainty whether other servicing disruptions will occur in the future. If additional servicing disruptions occur or other factors negatively impact the repayment performance of the private education loans made under the 2009 Loan Program in the future, the contingent liability associated with our guarantee obligations under the 2009 RSA would increase and we could be required to pay additional material amounts under those guarantee obligations, which could have a material adverse effect on our financial condition, results of operations and cash flows.

In the year ended December 31, 2013, we recorded $91.0 million of additional charges related to our guarantee obligations under the 2009 RSA. The entire amount of the loss recorded in the year ended December 31, 2013 related to a change in our accounting estimate for the amount of our guarantee obligations under the 2009 RSA. We revised our estimate for the 2009 RSA based on an enhanced default rate methodology and more recent performance data that we obtained in the three months ended December 31, 2013. The primary enhancements and performance data included:

• an adjustment to the default estimates for student borrowers, as a result of recently obtained actual default data for similarly-situated student borrowers;

• an adjustment to the default rate expectations, due to declines in repayment performance;

• our ability to make Discharge Payments; and

• a lower expectation for collections on defaulted loans as a result of the performance to date of collections.

As of December 31, 2013, the recorded liability related to our guarantee obligations under the 2009 RSA was approximately $116.9 million, compared to $121.7 million related to the RSAs and the 2007 RSA as of December 31, 2012. Our recorded liability for our guarantee obligations under the 2009 RSA and the 2007 RSA (and, prior to February 28, 2013, the PEAKS Guarantee) was included in Other current liabilities and Other liabilities on our Consolidated Balance Sheets. See Note 16 – Commitments and Contingencies of the Notes to Consolidated Financial Statements, for a further discussion of the recorded liability.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

In the normal course of our business, we are subject to fluctuations in interest rates that could impact the cost of our financing activities and guarantee obligations. Our primary interest rate risk exposure results from changes in short-term interest rates, the LIBOR and the U.S. prime rate.

-83-

Changes in the LIBOR would affect the borrowing costs associated with the Amended Credit Agreement and the PEAKS Senior Debt. Changes in the U.S. prime rate would affect the interest cost of the PEAKS Trust Student Loans. We estimate that the market risk can best be measured by a hypothetical 100 basis point increase in the LIBOR or U.S. prime rate. If such a hypothetical increase in the LIBOR or U.S. prime rate were to occur, the effect on our results from operations and cash flows would not have been material for the year ended December 31, 2013.

Item 8. Financial Statements and Supplementary Data.

The information required by this Item appears on pages F-1 through F-57 of this Annual Report.

Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.

Not applicable.

Item 9A. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

We are responsible for establishing and maintaining disclosure controls and procedures (“DCP”) that are designed to ensure that information required to be disclosed by us in the reports filed or submitted by us under the Exchange Act is: (a) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms; and (b) accumulated and communicated to our management, including our principal executive and principal financial officers, to allow timely decisions regarding required disclosures. In designing and evaluating our DCP, we recognize that any controls and procedures, no matter how well designed and implemented, can provide only reasonable assurance of achieving the desired control objectives.

We conducted an evaluation pursuant to Rule 13a-15 of the Exchange Act of the effectiveness of our DCP as of December 31, 2013. This evaluation was conducted under the supervision (and with the participation) of our management, including our Chief Executive Officer and Chief Financial Officer. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our DCP were not effective at the reasonable assurance level as of December 31, 2013, because of material weaknesses in our internal control over financial reporting described in Management’s Report on Internal Control Over Financial Reporting included in this filing.

Notwithstanding the material weaknesses, our management, based on the substantial work performed, concluded that our consolidated financial statements for the periods covered by and included in this Annual Report on Form 10-K are fairly stated in all material respects in accordance with GAAP for each of the periods presented in this Annual Report on Form 10-K.

Management’s Plan for Remediation

Our management and Board of Directors are committed to the remediation of the material weaknesses, as well as the continued improvement of our overall system of ICFR. We are in the process of implementing measures to remediate the underlying causes of the control deficiencies that gave rise to the material weaknesses, primarily through additional review procedures and engaging supplemental resources. We believe these measures will remediate the control deficiencies. However, we have not completed all of the corrective processes, procedures and related evaluation or remediation that we believe are necessary. As we continue to evaluate and work to remediate the control deficiencies that gave rise to the material weaknesses, we may determine that additional measures are required to address the control deficiencies.

We are committed to maintaining a strong internal control environment, and believe that these remediation actions will represent improvements in our ICFR when they are fully implemented. Certain remediation steps, however, have not been implemented or have not had sufficient time to be fully integrated in the operations of our ICFR. As a result, the identified material weaknesses will not be considered remediated, until controls have been designed and/or controls are in operation for a sufficient period of time for our management to conclude that the control environment is operating effectively. Additional remediation measures may be required, which may require additional implementation time. We will continue to assess the effectiveness of our remediation efforts in connection with our evaluation of our ICFR and DCP.

As we continue to evaluate and work to remediate the material weaknesses and enhance our ICFR and DCP, we may determine that we need to modify or otherwise adjust the remediation measures described above. As a result, we cannot assure you that our remediation efforts will be successful or that our ICFR or DCP will be effective as a result of those efforts.

-84-

Changes in Internal Control Over Financial Reporting

We evaluated the changes in our internal control over financial reporting that occurred during the quarter ended December 31, 2013 and concluded that the consolidation of the PEAKS Trust and any related changes to internal controls to include the PEAKS Trust in our consolidated financial statements have materially affected, or are reasonably likely to materially affect, our ICFR.

Management’s Annual Report on Internal Control Over Financial Reporting. Our management’s report on internal control over financial reporting appears on page F-1 of this Annual Report and is incorporated herein by reference.

The effectiveness of our ICFR, as of December 31, 2013 has been audited by PricewaterhouseCoopers LLP (“PWC”), our independent registered public accounting firm, as stated in its report dated October 15, 2014, which appears on page F-2 of this Annual Report and is incorporated herein by reference.

Item 9B. Other Information.

Private Education Loan Program Guarantee Matters

In connection with the finalization of our audited, consolidated financial statements included in this Annual Report on Form 10-K and our restated condensed consolidated financial statements included in our amended Quarterly Reports on Form 10-Q for each of the fiscal quarters ended March 31, 2013, June 30, 2013 and September 30, 2013, it became apparent that we were not in compliance with certain metrics specified in the PEAKS Program documents as of prior quarterly measurement dates, resulting in the minimum required Asset/Liability Ratio being increased to 1.40/1.00 in prior periods. As a result, on October 9, 2014, we made a guarantee payment of $50.0 million to the PEAKS Trust. We believe that this payment, along with other payments we made in recent months, were required under the PEAKS Guarantee in order for the PEAKS Trust to maintain the minimum required Asset/Liability Ratio of 1.40/1.00 in prior periods. We believe that it is probable that we will make additional payments under the PEAKS Guarantee and estimate that those payments may be approximately $164.0 million in 2014 (which amount includes the $50.0 million payment described above in this paragraph), $9.2 million in 2015 and $40.8 million in 2020. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Private Education Loan Program Obligations,” for a further discussion of the PEAKS Guarantee and prior and estimated future payment amounts under the PEAKS Guarantee.

In connection with the finalization of our audited, consolidated financial statements included in this Annual Report on Form 10-K, we recorded a liability related to the 2009 RSA in the amount of $116.9 million as of December 31, 2013, a substantial increase from the amount recorded as of December 31, 2012. See Note 16 – Commitments and Contingencies of the Notes to Consolidated Financial Statements, for a further discussion of the contingent liability related to the 2009 RSA. Further, the amount of the contingent liability that we record related to the 2009 RSA in periods after December 31, 2013 could further increase substantially. As of December 31, 2013, we concluded that we were not required to consolidate the financial results of the 2009 Entity in our consolidated financial statements. Based on preliminary loan performance data as of September 30, 2014 that we have received regarding the private education loans made under the 2009 Loan Program, however, we believe that, as of September 30, 2014, the 2009 Loan Program Servicer may not have met the performance criteria specified in the 2009 Servicing Agreement. As a result, it appears likely that the 2009 Loan Program Servicer either has failed, or within the foreseeable future will fail, to meet the performance criteria in the 2009 Servicing Agreement. Once that occurs, following a cure period and that assuming that no cure occurs, we will have the right to terminate the 2009 Servicing Agreement. As a result of that right, we will be required to consolidate the financial results of the 2009 Entity into our consolidated financial statements. We believe that our right to terminate the 2009 Servicing Agreement will become operative in late 2014 or early 2015. See “—Private Education Loan Program Obligations” and Note 10 – Variable Interest Entities and Note 16 – Commitments and Contingencies of the Notes to Consolidated Financial Statements, for a further discussion of the 2009 RSA.

Further, in connection with the finalization of our audited, consolidated financial statements included in this Annual Report on Form 10-K and our restated condensed consolidated financial statements included in our amended Quarterly Reports on Form 10-Q for each of the fiscal quarters ended June 30, 2013 and September 30, 2013, it became apparent that we were not in compliance with the financial ratio covenants in the 2009 RSA as of June 30, 2013 and subsequent measurement dates. As a result of that noncompliance, the amount of collateral required to be maintained in the restricted bank account that holds the cash collateral to secure our obligations under the 2009 RSA has been increased by approximately $2.6 million. We intend to make in October 2014 a deposit in that amount to the restricted bank account to be held as additional collateral under the 2009 RSA.

Consent to Amended Credit Agreement

We entered into the Consent, which is effective upon the delivery by us to the lenders under the Amended Credit Agreement of our audited, consolidated financial statements included in this Annual Report on Form 10-K, with the lenders party thereto and JPMorgan Chase Bank, N.A., as administrative agent. The Consent provides that:

• our internally prepared consolidated balance sheet and related statements of operations, stockholders’ equity and cash flows, and the certificate of a financial officer as described in Section 5.01(c) of the Amended Credit Agreement, in each case, as of and for the fiscal quarter ending March 31, 2014, required to be furnished by us, are required to be furnished by November 15, 2014, instead of October 15, 2014 (the date established by the Fifth Amendment);

• our internally prepared consolidated balance sheet and related statements of operations, stockholders’ equity and cash flows, and the certificate of a financial officer as described in Section 5.01(c) of the Amended Credit Agreement, in each case, as of and for the fiscal quarter ending June 30, 2014, required to be furnished by us, are required to be furnished by November 15, 2014, instead of October 31, 2014 (the date established by the Fifth Amendment); and

• our internally prepared consolidated balance sheet and related statements of operations, stockholders’ equity and cash flows, and the certificate of a financial officer as described in Section 5.01(c) of the Amended Credit Agreement, in each case, as of and for the fiscal quarter ending September 30, 2014, required to be furnished by us, are required to be furnished by December 15, 2014, instead of November 14, 2014 (the original date required by the Credit Agreement).

PART III

Item 10. Directors, Executive Officers and Corporate Governance.

Directors and Executive Officers

The following is the biographical information with respect to our directors and our executive officers as of September 30, 2014. Unless otherwise specified, the occupation of each individual has been the same for the past five years.

Jerry M. Cohen, age 62, retired as a senior partner of Deloitte & Touche, LLP (“Deloitte”) in June 2014. Mr. Cohen joined Deloitte in 1973, and served for over 40 years with that firm, providing business advisory and audit services to a wide range of global organization, including small, mid and large cap multinational public companies. Mr Cohen worked with corporate boards of directors to develop, enhance and support corporate strategy and functioned as an advisor to senior executives and members of boards of directors. During his career, Mr. Cohen also served in a wide variety of strategic and leadership roles at Deloitte, including: managing partner, Philadelphia office; member of the Mid-Atlantic Executive Committee; regional managing partner – Assurance and Advisory Operations, Midwest; member of the Assurance and Advisory Management Committee; and member of the Assurance and Advisory Partner Evaluation and Compensation Committee. Mr. Cohen has been a Director of ours since September 2014.

John F. Cozzi, age 53, has served as managing director of AEA Investors LP, a private equity firm, since January 2004. Mr. Cozzi has been a Director of ours since October 2003.

John E. Dean, age 64, has served as our Executive Chairman since August 4, 2014. Mr. Dean is an attorney who has specialized in higher education law since April 1985. Mr. Dean has been a partner at the Law Offices of John E. Dean since June 2005. Mr. Dean has also served as a principal of Washington Partners, LLC, a public affairs firm, since June 2002. Mr. Dean has been a Director of ours since December 1994.

James D. Fowler, Jr., age 70, served as senior vice president and director, human resources of ITT Industries, Inc., an industrial, commercial machinery and equipment company, from November 2000 until his retirement in October 2002. Mr. Fowler has been a Director of ours since April 1994.

Joanna T. Lau, age 56, has served as chairperson and chief executive officer of Lau Acquisition Corporation (doing business as LAU Technologies), a management consulting and investment firm, since March 1990. She is also a director of DSW Inc. Ms. Lau has been a Director of ours since October 2003.

Thomas I. Morgan, age 60, has served as chairman of Baker & Taylor, Inc. (“B&T”), a distributor of physical and digital books, entertainment products and value-added services, from July 2008 until January 2014. He served as chief executive officer of B&T from July 2008 through January 2013. Prior to that, Mr. Morgan served as chief executive officer of Hughes Supply, Inc., a diversified wholesale distributor of construction, repair and maintenance-related products, from May 2003 until his

-85-

retirement in March 2006. Mr. Morgan is also a director of Rayonier Advanced Materials, Inc. and Tech Data Corporation. During the past five years, Mr. Morgan was also a director of Rayonier, Inc. Mr. Morgan previously served as a Director of ours from May 2006 to June 2008, and currently has served as a Director of ours since January 2013.

Samuel L. Odle, age 65, has been a senior policy advisor for Bose Public Affairs Group, a public affairs consulting firm, since October 2012. He has also acted as a consultant, primarily in the healthcare and life sciences fields, since July 2012. Prior to that, he served as president and chief executive officer of Methodist Hospital (“MH”) and Indiana University Hospital (“IUH”) and executive vice president of Indiana University Health (formerly Clarian Health Partners) (“IU Health”), an Indianapolis-based private, non-profit healthcare organization comprised of MH, IUH and Riley Hospital for Children, since July 2004. Mr. Odle has been a Director of ours since January 2006.

Vin Weber, age 62, has served as co-chairman and partner of Mercury Public Affairs LLC (doing business as Mercury), a public affairs and lobbying firm, since October 2011. Mr. Weber was a partner at Clark & Weinstock Inc. (“C&W”) from 1994 until October 2011 and was the chief executive officer of C&W from 2007 until October 2011. During the past five years, he was also a director of Lenox Group, Inc. Mr. Weber has been a Director of ours since December 1994.

John A. Yena, age 74, has served as chairman of the board, emeritus of Johnson & Wales University (“J&W”), a postsecondary educational institution, since November 2011. Mr. Yena served as chairman of the board of J&W from June 2004 until November 2011. During the past five years, he was also a director of Bancorp Rhode Island, Inc. Mr. Yena has been a Director of ours since May 2006.

Kevin M. Modany, age 47, has served as our Chief Executive Officer since April 2007. Mr. Modany notified our Board of Directors that he intended to resign as our Chief Executive Officer, effective February 4, 2015. Following Mr. Modany’s notice, we entered into a letter agreement with Mr. Modany, pursuant to which he will remain Chief Executive Officer for a period ending on February 4, 2015, as extended or earlier terminated by us (the “Applicable Period”). Mr. Modany will resign his position as our Chief Executive Officer on the last day of the Applicable Period. Mr. Modany served as a Director of ours from July 2006 until August 4, 2014 and as our Chairman from February 2008 until August 4, 2014. He also served as our President from April 2005 through March 2009.

Eugene W. Feichtner, age 59, has served as our President and Chief Operating Officer since August 4, 2014. Mr. Feichtner served as an Executive Vice President and as President, ITT Technical Institute Division from April 2009 until August 4, 2014. He served as our Senior Vice President, Operations from March 2004 through March 2009.

Daniel M. Fitzpatrick, age 55, has served as our Executive Vice President, Chief Financial Officer since April 2009. He served as our Senior Vice President, Chief Financial Officer from June 2005 through March 2009.

Ronald F. Hamm, age 50, has served as our Executive Vice President, President – Breckenridge School of Nursing and Health Sciences since March 2013. Mr. Hamm served as senior vice president field operations of Kadmon Pharmaceuticals, LLC, a subsidiary of Kadmon Corporation, LLC which is a global biopharmaceutical company, from October 2010 until March 2013. He served as senior vice president, sales and marketing of Three Rivers Pharmaceuticals, LLC, a pharmaceuticals company, from December 2003 through September 2010.

Gerald T. Hope, age 51, has served as our Executive Vice President, Chief Information Officer since September 2013. Mr. Hope served as global head, chief information officer of corporate systems of Thomson Reuters Corporation (“Thomson Reuters”), a leading source of intelligent information for the world’s businesses and professionals, from February 2009 until September 2013. Prior to that, Mr. Hope served as general manager and vice president of operations of Thomson Reuters from May 2005 until November 2007.

June M. McCormack, age 66, has served as an Executive Vice President since April 2009 and as our President, Online Division since May 2008. Ms. McCormack also served as our Interim Chief Information Officer from May 2012 through November 2012 and from June 2013 through September 2013.

Ryan L. Roney, age 41, has served as our Executive Vice President, Chief Administrative and Legal Officer and Secretary since July 2014. Mr. Roney served as the chief legal officer, executive vice president of business development and corporate secretary of Vistage International, Inc., a chief executive membership organization, from December 2012 until July 2014. Prior to that, he served as the chief ethics & compliance officer of Powerwave Technologies, Inc., a global supplier of end-to-end wireless solutions for wireless communications networks from June 2011 until November 2012. From October 2000 until March 2011, Mr. Roney served in various roles with Smiths Group, PLC, most recently as general counsel of Smiths Detection, a provider of regulated technology products and advanced services from August 2002 through March 2011.

        Glenn E. Tanner, age 66, has served as our Executive Vice President, Chief Marketing Officer since April 2009. He served as our Senior Vice President, Marketing from April 2007 through March 2009.

Rocco F. Tarasi, III, age 42, has served as Senior Vice President, President – The Center for Professional Development since January 2013. He served as our Vice President, Finance – Corporate Strategy and Development from October 2011 through January 2013. Mr. Tarasi was the co-founder of BrainCredits, an education start-up, from August 2010 through October 2011, and served as managing director, policyIQ for Resources Global Professionals, a multinational professional services firm, from July 2003 through August 2010.

-86-

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Exchange Act requires our executive officers and Directors, and persons who own more than 10% of our common stock, to file reports of ownership with the SEC. These persons also are required to furnish us with copies of all Section 16(a) forms they file. Based solely on our review of copies of such forms received by us, or written representations from certain reporting persons that no Forms 5 were required for those persons, we believe that, during 2013, all of our executive officers, Directors and greater than 10% shareholders complied with all applicable filing requirements, except for one Form 4 reporting the sale of 757 shares that was filed late by Ms. McCormack in 2013.

Code of Ethics

We have adopted a written Code of Business Conduct and Ethics (the “Code”) in accordance with Item 406 of Regulation S-K under the Exchange Act that is applicable to our Directors and employees, including our principal executive officer, principal financial officer and principal accounting officer or controller, or persons performing similar functions. The Code is posted on our website at www.ittesi.com.

We also intend to promptly disclose on our website any amendments that we make to the Code. To the extent that our Board of Directors grants any waiver of the Code for any of our Directors or executive officers, we intend to disclose the waiver on our website within four business days following the grant of the waiver.

Audit Committee

Our Audit Committee was established in accordance with Section 3(a)(58)(A) of the Exchange Act. Our Board of Directors has adopted a written charter for the Audit Committee, a current copy of which may be obtained from our website at www.ittesi.com. The functions of the Audit Committee are to assist the Board of Directors in its oversight of:

• the integrity of our financial statements and other financial information provided by us to any governmental body or the public;

• our compliance with legal and regulatory requirements;

• our systems of internal controls regarding finance, accounting, legal compliance and ethics that our management and the Board of Directors establish;

• our auditing, accounting and financial reporting processes generally;

• the qualifications, independence and performance of our independent registered public accounting firm; and

• the performance of our compliance and internal audit functions.

The Audit Committee also performs other functions as detailed in the Audit Committee’s charter, including, without limitation, appointing, compensating, retaining and overseeing our independent registered public accounting firm and pre-approving all services to be provided to us by our independent registered public accounting firm.

The Audit Committee held five meetings during 2013. The members of the Audit Committee throughout 2013, and in 2014 until August 4, 2014, were John F. Cozzi, John E. Dean (Chairperson), Joanna T. Lau and Thomas I. Morgan (since January 21, 2013). The current members of the Audit Committee are Jerry M. Cohen (Chairperson) (since October 6, 2014), John F. Cozzi, Joanna T. Lau and Thomas I. Morgan. Our Board of Directors has determined that Jerry M. Cohen is an “audit committee financial expert,” as that term is defined in Item 407(d)(5) of Regulation S-K under the Exchange Act, and is independent pursuant to our categorical standards of independence, Section 303A.02 of the NYSE Listed Company Manual and Rule 10A-3 of the Exchange Act. Each of the current members of the Audit Committee is independent and each of the members of the Audit Committee in 2013 was independent, pursuant to our categorical standards of independence, Section 303A.02 of the NYSE Listed Company Manual and Rule 10A-3 of the Exchange Act.

Item 11. Executive Compensation.

Compensation Discussion and Analysis

This discussion explains the compensation program for our executives, including the Named Executive Officers. The individuals included as Named Executive Officers in this document are:

• Kevin M. Modany, who served as our Chief Executive Officer during all of 2013;

• Daniel M. Fitzpatrick, who served as our Chief Financial Officer during all of 2013; and

• Eugene W. Feichtner, June M. McCormack and Glenn E. Tanner, who were our three other most highly compensated executive officers during 2013.

This discussion describes the following:

• the objectives of our compensation program;

• what our compensation program is designed to reward;

• each element of compensation;

• why we choose to pay each compensation element;

• how we determine the amount to pay and, where applicable, the formula with respect to each compensation element;

• how each compensation element and our decisions regarding that element relate to our overall compensation objectives and affect our decisions regarding other compensation elements; and

• our consideration of the results of the most recent shareholder advisory vote on the compensation of our Named Executive Officers and any related effect on our executive compensation policies and decisions.

-87-

Executive Summary. Our executive compensation program is designed to attract, retain and motivate skilled executives. Based on its review of all of the elements of our executive officers’ compensation, the Compensation Committee found that the compensation paid to our executive officers in 2013 was reasonable in light of market practices and effective in fulfilling the Committee’s compensation objectives, as described below. See “—Compensation Objectives.”

In 2011, the Compensation Committee was required to make changes to our executive compensation program as a result of the Incentive Compensation Prohibition affecting our industry that severely limit the types of, and bases for awarding, compensation to employees of postsecondary education institutions, like us. The ED has defined this prohibition on incentive compensation to include anything of value for services rendered (other than a fixed salary or wage) that is:

• based in any part, directly or indirectly, on activities engaged in at any point in time through the completion of an educational program for the purpose of enrollment of students for any period of time or the award of financial aid to students; and

• provided to any employee who undertakes recruiting or admitting of students, makes decisions about and awards federal student financial aid, or has responsibility for any such activities.

The limiting language of the Incentive Compensation Prohibition is very broad and the ED has not provided sufficient guidance on the breadth or scope of the regulations. As a result, we believe that the Incentive Compensation Prohibition can be interpreted to cover all of our employees (including our executive officers) and to prohibit the payment of compensation based on any performance-related metric, including common performance metrics such as earnings, earnings per share and total shareholder return since such metrics are driven by student enrollment and amounts received from financial aid. We reached this conclusion after consulting with regulatory counsel and considering that any alternative conclusion would involve a high level of risk for our company. An institution that is found to be in noncompliance with the Incentive Compensation Prohibition could face significant monetary penalties, limitations on its operations and/or termination of its eligibility to participate in all federal student financial aid programs.

The Compensation Committee determined that, while it would prefer to continue to base executive compensation on performance-related metrics, the risk of violating the Incentive Compensation Prohibition prevented, and will prevent, the Committee from basing compensation amounts or adjustments on individual or company performance after the July 1, 2011 effective date of the Incentive Compensation Prohibition. The Compensation Committee recognized that, while the short- and long-term performance of both the individual executive officers and our company will no longer be used in compensation decisions, such performance will be reviewed by the full Board of Directors when evaluating the continued employment of each executive officer. The Compensation Committee determined that it would continue to be guided by the following objectives in determining the compensation of our executives:

• competition;

• alignment with shareholder interests; and

• focus.

As a result of the prohibition on basing any portion of the executives’ compensation on performance, the Compensation Committee did not establish an annual bonus program for 2013, but it did establish a short-term compensation element based on certain management objectives in 2013. As a result, in order to achieve the objectives noted above, the Compensation Committee used the following compensation elements as part of the 2013 executive compensation program, as described in more detail below under “—Compensation Elements”:

• base salary;

• short-term compensation;

• an annual grant of equity compensation;

• employee benefits;

• perquisites; and

• qualified retirement savings.

Compensation Objectives. The Compensation Committee is guided by the following objectives in determining the compensation of our executives:

• Competition. The Committee believes that compensation should reflect the competitive marketplace in order for us to attract, retain and motivate talented executives.

• Alignment with Shareholder Interests. Compensation should include equity-based compensation awards in order to align the executives’ interests with those of our shareholders.

• Focus. The Committee believes that certain elements of compensation should provide some security to our executives to allow them to continue to focus on our financial and operating results, their individual performance and their job responsibilities.

-88-

Compensation Elements. The elements of our compensation program, a description of the purpose of each element and the objectives that each element supports are shown in the table below. See “– Compensation Objectives.”

Compensation Element	Purpose	Link to Compensation Objectives
Base Salary	Fixed cash component used to help us attract, motivate and retain our executives.	•       Competition •       Focus
Short-Term Compensation	Variable cash component used to help us motivate and retain our executives.	•       Competition •       Focus
Equity-Based Compensation (e.g., Time-Based Stock Options and/or Restricted Stock Unit Awards)	Used to promote equity ownership by our executives. Aligns the executives’ interests with those of our shareholders.	•       Competition •       Alignment with Shareholder Interests •       Focus
Qualified Retirement Savings (i.e., 401(k) Plan Contributions)	Used to help us provide stable compensation and some security to our executives, in order to help them save for retirement on a tax-deferred basis.	•       Competition •       Focus
Nonqualified Deferred Compensation	Provided some security to our executives and helped them save a portion of their compensation for retirement on a tax-deferred basis.	•       Deferrals and contributions are no longer made under these plans.
Pension Benefits (i.e., Qualified and Nonqualified Retirement Plan Earnings)	Allowed executives to focus on their job responsibilities while employed and provided some security upon retirement.	•       Benefit accruals under our pension plans were frozen as of March 31, 2006.
Employee Benefits	Provides stable compensation and some security to our executives, in order to allow them to focus on their job responsibilities.	•       Competition •       Focus
Perquisites	Used to recognize our executives based on their responsibilities and to help us attract, motivate and retain our executives. Helps our executives focus on their job responsibilities.	•       Competition •       Focus
Potential Payments Upon Termination of Employment or a Change in Control of Us	Provides for payments in connection with a change in control and/or involuntary termination of employment. Provides some security to our executives to help them focus on their job responsibilities and to encourage them to remain employed with us during a critical time of a potential change in control.	•       Competition •       Alignment with Shareholder Interests •       Focus

-89-

2013 Compensation

Base Salary. Salaries provide a necessary element of stability in the total compensation program and, as such, are not subject to variability. Salaries are set and administered to reflect the value of the job in the marketplace. In February 2013, the Compensation Committee established the salary levels for the Named Executive Officers, that became effective on February 11, 2013, based on a review of:

• the base salaries of executives in the same or similar positions at the comparator companies that the Committee uses for benchmarking as described under “—Process for Establishing Compensation— Benchmarking”;

• the area and level of job responsibilities of each executive; and

• inflationary factors.

The Committee has decided that, until such time, if any, that the ED provides clear and sufficient guidance regarding performance-based salary adjustments under the Incentive Compensation Prohibition, future adjustments to the salary levels of each executive will be based solely on:

• the base salaries of executives in the same or similar positions at the comparator companies that the Committee uses for benchmarking;

• the area and level of job responsibilities of each executive; and

• inflationary factors.

The following table sets forth the annualized base salary information for each of the Named Executive Officers as of February 11, 2013.

Named Executive Officer	2013 Annualized Base Salary		Dollar Increase Over Prior Year		Percentage Increase Over Prior Year
Kevin M. Modany	$	800,074	$	11,824		1.5	%
Daniel M. Fitzpatrick	$	400,000	$	64,680		19.3	% (1)
Eugene W. Feichtner	$	310,108	$	4,583		1.5	%
June M. McCormack	$	276,791	$	4,091		1.5	%
Glenn E. Tanner	$	259,107	$	3,829		1.5	%

(1) Based on benchmarking information received from Farient Advisors LLC (“Farient”), the Compensation Committee noted that Mr. Fitzpatrick’s 2012 base salary was lower than the median of the range of the base salaries provided to executives in the same position as Mr. Fitzpatrick at the comparator companies that the Committee used for benchmarking. Since the Committee’s target for the cash portion of executive compensation is the median of the range of cash compensation provided to executives of comparator companies, the Compensation Committee determined to increase Mr. Fitzpatrick’s 2013 base salary at a higher percentage than the increase to the 2013 base salary of the other Named Executive Officers, in order to bring Mr. Fitzpatrick’s base salary closer to the median of the range of the base salaries provided to executives in the same position as Mr. Fitzpatrick at the comparator companies.

Short-Term Compensation. In February 2013, the Compensation Committee established a short-term compensation element for our executive officers that would be payable in early 2014, if certain management objectives (the “2013 Management Objectives”) were accomplished during 2013. The 2013 Management Objectives were not in any way related to the enrollment of students or the award of financial aid to avoid violating the Incentive Compensation Prohibition. Instead, the 2013 Management Objectives consisted of various business objectives that related to certain initiatives that are part of our strategic plan. The 2013 Management Objectives included:

• obtain requisite authorizations for corporate training, continuing education and/or test preparation courses;

-90-

• obtain requisite authorizations for a variety of allied health programs at the ITT Technical Institutes;

• obtain requisite authorizations for additional science, technology and/or engineering associate degree programs at the ITT Technical Institutes;

• obtain requisite authorizations for a dual high school diploma and associate degree at an ITT Technical Institute;

• create a content mapping construct with respect to all program and course offerings that link each component;

• design and implement a comprehensive student support services improvement plan;

• determine the viability of an IT Services Operation at the ITT Technical Institutes; and

• obtain requisite authorizations for education and/or nursing degree programs at Daniel Webster College.

On January 20, 2014, the Compensation Committee reviewed the results of the 2013 Management Objectives and determined the extent to which each of the 2013 Management Objectives was accomplished by our executive officers in 2013. The Committee assigned zero to five points to each 2013 Management Objective, based on its determination of the extent to which the objective was accomplished. The following table sets forth the maximum short-term compensation percentage associated with each range of the aggregate number of points assigned to the 2013 Management Objectives by the Compensation Committee:

Total Points	Maximum Short-Term Compensation Percentage
36-40		200.0	%
31-35		175.0	%
26-30		150.0	%
21-25		125.0	%
16-20		100.0	%
11-15		75.0	%
6-10		50.0	%
0-5		25.0	%

Based on the Committee’s determination of the extent to which each of the 2013 Management Objectives was accomplished, the Committee assigned an aggregate of 23 points to the 2013 Management Objectives. That aggregate number of points corresponded to a maximum short-term compensation percentage of 125%, based on the above table.

To determine the maximum short-term compensation amount that an executive officer could receive, the Compensation Committee multiplied the maximum short-term compensation percentage (determined as described above) by a standard short-term compensation percentage of annualized base salary as of December 31, 2013, ranging from 32% to 100%, with the percentage depending on the officer’s position, and then multiplied that result by the officer’s annualized base salary. The following table sets forth the 2013 standard short-term compensation percentage of annualized base salary as of December 31, 2013 for each of the Named Executive Officers:

Named Executive Officer	2013 Standard Short- Term Compensation Percentage of Annualized Base Salary
Kevin M. Modany		100	%
Daniel M. Fitzpatrick		65	%
Eugene W. Feichtner		60	%
June M. McCormack		60	%
Glenn E. Tanner		60	%

An executive officer’s actual short-term compensation payment, however, could be more or less than the officer’s potential short-term compensation amount as calculated and described above. An executive officer’s actual short-term compensation amount also took into consideration the Compensation Committee’s discretionary assessment of the officer’s individual contribution toward accomplishing each 2013 Management Objective. The Committee did not adjust any of the Named Executive Officers’ 2013 short-term compensation from the amounts calculated as described above.

On January 20, 2014, the Compensation Committee approved the payment of the 2013 short-term compensation amount in cash to each of the Named Executive Officers, as follows:

Named Executive Officer	2013 Short-Term Compensation Payment		2013 Short-Term Compensation Payment as a Percentage of 2013 Annualized Base Salary
Kevin M. Modany	$	1,000,093		125.00	%
Daniel M. Fitzpatrick	$	325,000		81.25	%
Eugene W. Feichtner	$	232,581		75.00	%
June M. McCormack	$	207,593		75.00	%
Glenn E. Tanner	$	194,330		75.00	%

-91-

Equity-Based Compensation. The Compensation Committee believes that equity-based compensation should be a major component of the total compensation for executives. The Committee believes that the use of equity in the payment of compensation enhances our executives’ commitment to our company over the long-term, because the value of equity-based compensation awards, such as time-based stock options, restricted stock and RSUs, helps align the executives’ interests with those of our shareholders. The type and value of the equity-based compensation awards vary based on the executive’s level and type of responsibilities.

In February 2013, the Compensation Committee reviewed the equity awards granted in 2011 and 2012 to our executives and executives in the same or similar positions at the comparator companies that the Committee uses for benchmarking, and calculated the average percentage that those awards bore to the applicable company’s outstanding common shares. See”—Process for Establishing Compensation—Benchmarking.” The Committee had utilized that information in the prior year to determine the upper quartile range of peer practices based on the percentage of common stock outstanding and to grant equity awards within that range to our executives. In February 2013, the Committee also reviewed the equity grants that had been granted to executives in the same or similar positions at those comparator companies in 2012. The Committee determined that for the 2013 annual equity grant, it would approve an award of the same number of shares to each executive that it had awarded in each of the prior two years (based on the number of shares that would be included in the award if it consisted entirely of a stock option), notwithstanding the fact that, as a result, the 2013 equity grants would not be in the upper quartile range of peer practices, and the total direct compensation of our executives would not be in the upper third of the range of compensation provided to executives of comparator companies. The number of shares to be used for the 2013 grant to Mr. Fitzpatrick was increased, however, from the number awarded to him in each of the prior two years, in order to bring the number of shares awarded to him closer to the median of the range of peer practices based on the percentage of common stock outstanding. The Compensation Committee used a binomial option pricing model to determine the fair value of the stock options that would be included in the awards if they consisted entirely of a stock option, and it decided that each executive would receive one-half of the fair value applicable to that executive in the form of stock options and the other half of that value in RSUs. The number of RSUs to be included in each award were then calculated by dividing one-half of the fair value to be received by the executive by $16.50, the same market price used in the binomial option pricing model.

The Compensation Committee acknowledged that the number of shares available for issuance under the 2006 Equity Compensation Plan was insufficient to make the 2013 stock option and RSU grants to executives that it determined should be made as described above. As a result, the Committee approved the awards on February 19, 2013, but made the awards contingent on our shareholders’ approval of the ITT Educational Services, Inc. Amended and Restated 2006 Equity Compensation Plan (the “Amended 2006 Plan”). Our shareholders approved the Amended 2006 Plan at the 2013 Annual Meeting of Shareholders, and the stock option and RSU awards to our executives were granted on May 9, 2013.

The following table sets forth information about the stock options and RSUs that were granted under the Amended 2006 Plan effective May 9, 2013 to each Named Executive Officer as described above.

	Stock Options							RSUs
Named Executive Officer	Number of Securities Underlying Option Granted			Exercise Price		Expiration Date		Number of RSUs			Grant Date (1)		Date Compensation Committee Took Action (2)
Kevin M. Modany		62,500	(3)	$	19.31		05/09/20		28,125	(4)		05/09/13	02/19/13
Daniel M. Fitzpatrick		15,000	(3)	$	19.31		05/09/20		6,750	(4)		05/09/13	02/19/13
Eugene W. Feichtner		10,000	(3)	$	19.31		05/09/20		4,500	(4)		05/09/13	02/19/13
June M. McCormack		10,000	(3)	$	19.31		05/09/20		4,500	(4)		05/09/13	02/19/13
Glenn E. Tanner		10,000	(3)	$	19.31		05/09/20		4,500	(4)		05/09/13	02/19/13

(1) The effective date of the stock option and RSU grants.

(2) The stock option and RSU grants were approved by the Compensation Committee during a Committee meeting on February 19, 2013, and had an effective grant date of May 9, 2013.

(3) Nonqualified stock option granted at 100% of the closing market price of a share of our common stock on May 9, 2013, the effective date of the grant. One-third of the option is exercisable on the anniversary date of the grant in each of the years 2014, 2015 and 2016.

(4) The period of restriction for this RSU grant lapses in thirds on the anniversary date of the grant in each of the years 2014, 2015 and 2016.

2014 Compensation

Base Salary. In January 2014, the Compensation Committee established the salary levels for the Named Executive Officers, that became effective on February 10, 2014, based on a review of:

• the base salaries of executives in the same or similar positions at the comparator companies that the Committee uses for benchmarking;

• the area and level of job responsibilities of each executive;

• inflationary factors; and

• tenure and industry knowledge and experience.

-92-

The following table sets forth the annualized base salary information for each of the Named Executive Officers as of February 10, 2014.

Named Executive Officer	2014 Annualized Base Salary		Dollar Increase Over Prior Year		Percentage Increase Over Prior Year
Kevin M. Modany	$	824,076	$	24,002		3.0	%
Daniel M. Fitzpatrick	$	412,000	$	12,000		3.0	%
Eugene W. Feichtner	$	319,411	$	9,303		3.0	%
June M. McCormack	$	285,094	$	8,303		3.0	%
Glenn E. Tanner	$	266,880	$	7,773		3.0	%

Short-Term Compensation. In March 2014, the Compensation Committee established a short-term compensation element for our executive officers that will be payable in early 2015, if certain management objectives (the “2014 Management Objectives”) are accomplished during 2014. As with the 2013 Management Objectives, the 2014 Management Objectives are not in any way related to the enrollment of students or the award of financial aid to avoid violating the Incentive Compensation Prohibition. Instead, the 2014 Management Objectives consist of various business objectives that relate to certain initiatives that are part of our strategic plan. The 2014 Management Objectives and their relative weightings are as follows:

	Management Objectives	Weight
1.	Obtain requisite state and accrediting commission authorizations for corporate training, continuing education and/or test preparation programs.		20	%
2.	Design and implement an operational optimization plan to increase ITT/ESI’s operational efficiencies for the corporation.		20	%
3.	Obtain requisite federal, state and accrediting commission authorizations for additional health science, technology and/or engineering programs at the ITT Technical Institutes at both the associate degree and diploma levels.		20	%
4.	Improve the 2014 ITT Technical Institute quarterly student evaluation average score.		10	%
5.	Revise and begin teaching the six identified high volume, high-impact program courses at the majority of ITT Technical Institute campuses.		10	%
6.	Acquire a training company to support strategic initiatives associated with The Center for Professional Development.		10	%
7.	Obtain requisite federal, state and accrediting commission authorizations for a dual high school diploma and associate degree program at an ITT Technical Institute.		5	%
8.	Obtain requisite federal, state and accrediting commission authorizations for additional nursing programs at the ITT Technical Institutes at both the associate and bachelor degree levels		5	%

-93-

The determination of the extent to which the 2014 Management Objectives are accomplished by our executive officers will be made by the Compensation Committee in early 2015. The Committee intends to assign one to five points to each 2014 Management Objective, based on the extent to which the Committee determines the objective was accomplished. The number of points assigned to each 2014 Management Objective will be multiplied by the weight associated with that 2014 Management Objective, resulting in a weighted number of points for that 2014 Management Objective. The weighted number of points for all of the 2014 Management Objectives will be added together, resulting in a total number of weighted points. The following table sets forth the maximum short-term compensation percentage that is associated with the total number of weighted points that are assigned to the 2014 Management Objectives by the Compensation Committee:

Total Weighted Points	Maximum Short-Term Compensation Percentage
4.76 - 5.00		200.0	%
4.51 - 4.75		187.5	%
4.26 - 4.50		175.0	%
4.01 - 4.25		162.5	%
3.76 - 4.00		150.0	%
3.51 - 3.75		137.5	%
3.26 - 3.50		125.0	%
3.01 - 3.25		112.5	%
2.76 - 3.00		100.0	%
2.51 - 2.75		87.5	%
2.26 - 2.50		75.0	%
2.01 - 2.25		62.5	%
1.76 - 2.00		50.0	%
1.51 - 1.75		41.7	%
1.26 - 1.50		33.3	%
1.00 - 1.25		25.0	%

To determine the maximum short-term compensation amount that an officer may receive, the maximum short-term compensation percentage (determined as described above) will be multiplied by a standard short-term compensation percentage of annualized base salary as of December 31, 2014, ranging from 32% to 100%, with the percentage depending on the officer’s position, and the result will be multiplied by the officer’s annualized base salary. The following table sets forth the 2014 standard short-term compensation percentage of annualized base salary as of December 31, 2014 for each of the Named Executive Officers:

Named Executive Officer	2014 Standard Short- Term Compensation Percentage of Annualized Base Salary
Kevin M. Modany		100	%
Daniel M. Fitzpatrick		65	%
Eugene W. Feichtner		60	%
June M. McCormack		60	%
Glenn E. Tanner		60	%

An executive officer’s actual short-term compensation payment, however, may be more or less than the officer’s potential short-term compensation as calculated as described above. An executive officer’s actual short-term compensation amount will be based on the Compensation Committee’s discretionary assessment of the officer’s individual contribution toward accomplishing each 2014 Management Objective. Any 2014 short-term compensation payment will be made in cash. The Compensation Committee may, in its sole discretion, modify the terms of the short-term compensation element at any time before it is paid.

Equity-Based Compensation. In January 2014, the Compensation Committee reviewed market information regarding the form and grant value of equity awards granted at comparator companies and companies in the survey data provided by Towers Watson & Co. (“Towers Watson”). The Committee determined to continue its practice of granting equity awards to executives in an amount that had been based on the upper quartile range of peer practices based on the percentage of common stock outstanding when that analysis was conducted in 2011. As a result, for the 2014 annual equity grant, the Committee approved an award of the same number of shares to each executive that it had awarded in each of the prior three years, except in the case of Mr. Fitzpatrick, who was awarded the same number of shares as in the prior year, notwithstanding the fact that, due to changes in the price of our common stock, the grant value of the 2014 equity awards would not be in the upper quartile range of current peer practices.

-94-

The following table sets forth information about the stock options and RSUs that were granted under the Amended 2006 Plan effective February 4, 2014 to each Named Executive Officer as described above.

	Stock Options							RSUs
Named Executive Officer	Number of Securities Underlying Option Granted			Exercise Price		Expiration Date		Number of RSUs			Grant Date (1)		Date Compensation Committee Took Action (2)
Kevin M. Modany		62,500	(3)	$	27.94		02/04/21		28,125	(4)		02/04/14	01/20/14
Daniel M. Fitzpatrick		15,000	(3)	$	27.94		02/04/21		6,750	(4)		02/04/14	01/20/14
Eugene W. Feichtner		10,000	(3)	$	27.94		02/04/21		4,500	(4)		02/04/14	01/20/14
June M. McCormack		10,000	(3)	$	27.94		02/04/21		4,500	(4)		02/04/14	01/20/14
Glenn E. Tanner		10,000	(3)	$	27.94		02/04/21		4,500	(4)		02/04/14	01/20/14

(1) The effective date of the stock option and RSU grants.

(2) The stock option and RSU grants were approved by the Compensation Committee during a Committee meeting on January 20, 2014, and had an effective grant date of February 4, 2014.

(3) Nonqualified stock option granted at 100% of the closing market price of a share of our common stock on February 4, 2014, the effective date of the grant. One-third of the option is exercisable on the anniversary date of the grant in each of the years 2015, 2016 and 2017.

(4) The period of restriction for this RSU grant lapses in thirds on the anniversary date of the grant in each of the years 2015, 2016 and 2017.

Other Elements of Compensation

Retirement Plans

Qualified Retirement Savings. Our executives participate in our ESI 401(k) Plan, a qualified defined contribution plan, that is designed to provide substantially all of our employees with a tax-deferred, long-term savings vehicle. See “– Equity Compensation and Qualified Savings Plans – ESI 401(k) Plan.”

Nonqualified Deferred Compensation. Due to federal limitations that preclude our highly-compensated employees from fully participating in the ESI 401(k) Plan, we established the ESI Excess Savings Plan, an unfunded, nonqualified deferred compensation plan for a select group of our management, including executive officers. We froze the ESI Excess Savings Plan, effective for plan years beginning on and after January 1, 2008, such that executives may no longer make elective deferrals and we no longer make contributions under the ESI Excess Savings Plan. Amounts previously credited to an executive under the ESI Excess Savings Plan, however, continue to accrue interest in accordance with the terms of the ESI Excess Savings Plan until those amounts are distributed pursuant to the plan’s terms. See “– Nonqualified Deferred Compensation Plans – ESI Excess Savings Plan.”

In addition, we established the ESI Executive Deferred Bonus Compensation Plan (the “Deferred Bonus Plan”), an unfunded, nonqualified deferred compensation plan, for a select group of our management and highly-compensated employees, including the Named Executive Officers. The Deferred Bonus Plan allows eligible employees to defer payment of all or a portion of his or her annual bonus compensation and to earn interest on any annual bonus compensation payable in the form of cash and deferred under the plan. Since the Committee did not establish an annual bonus award component of executive compensation for 2013, executives did not receive any compensation that they could elect to defer under the Deferred Bonus Plan with respect to 2013. See “– Nonqualified Deferred Compensation Plans – Deferred Bonus Plan.”

The terms of the ESI Excess Savings Plan and the Deferred Bonus Plan, including the interest rate on the earnings on the Named Executive Officers’ account balances under each plan, are based on common and typical terms and types of nonqualified deferred compensation plans that had been adopted by other publicly traded companies at the time that we adopted those plans.

Pension Benefits. Pension benefits provide retirement compensation that is based on the salary and bonus compensation paid to the employee during his or her employment. We froze the benefit accruals under the ESI Pension Plan and ESI Excess Pension Plan for all participants in the plans on March 31, 2006, such that no further benefits accrue under those plans after March 31, 2006. Participants do, however, continue to be credited with vesting service and interest credits according to the terms of those plans. See “– Pension Plans – ESI Pension Plan” and “– ESI Excess Pension Plan.”

Employee Benefits and Perquisites

Employee Benefits. All of our executives are eligible to participate in our employee benefits, which include medical and dental benefits, vision insurance, life insurance, flexible spending account, tuition reimbursement, disability insurance, vacation leave, sick leave, bereavement leave, ITT Technical Institute tuition discounts and an employee assistance program that can help employees find answers to various kinds of personal concerns by offering consultation, support, information, planning and referrals. The employee benefits are generally available on a non-discriminatory basis to all full-time and part-time regular employees.

Perquisites. We also provide limited perquisites to our executives, including the Named Executive Officers, that vary based on the executive’s level. The perquisites include use of a company car for our Chief Executive Officer only, a tax return

-95-

preparation and financial planning allowance, tickets to sporting, theater and other events, enhanced disability benefits, an annual physical examination, reimbursement for certain commuting expenses and relocation assistance for newly-hired executive officers from outside the Indianapolis metropolitan area whom we ask to relocate. The value and type of perquisites made available to our executives are based on the value and type of perquisites that had been made available to executives at other publicly-traded companies at the time that we began making those perquisites available, and at the time of each subsequent annual review by the Compensation Committee of those perquisites. The Compensation Committee believes that the limited perquisites assist in furthering the objectives of attracting, retaining and motivating executives, as well as helping our executives focus on their job responsibilities. The Compensation Committee also believes that our executives value the perquisites provided to them and, given that the cost to us of the perquisites is not significant, the Committee has determined to continue providing these perquisites to our executives.

The perquisites that we provided to our Named Executive Officers in 2013 are disclosed in the Summary Compensation Table and footnotes thereto. See “– Summary Compensation Table.” In January 2014, the Compensation Committee approved the value and type of perquisites to be provided in 2014 to the Named Executive Officers, which are consistent with the value and type of perquisites provided to them in 2013. The aggregate incremental cost to us in 2014 for providing all of the 2014 perquisites to the Named Executive Officers is not expected to exceed $150,000.

Potential Payments Upon Termination of Employment or a Change In Control of Us

Senior Executive Severance Plan. Our executive officers, including the Named Executive Officers, participate in the ITT Educational Services, Inc. Senior Executive Severance Plan (the “Senior Executive Severance Plan”), which provides for severance benefits if:

• we terminate the executive’s employment, other than for cause, or when the executive terminates his or her employment for good reason, in each case within two years after the occurrence of a change in control of us; or

• we terminate the executive’s employment, other than for cause, if a change in control of us is imminent.

The benefits vary depending on the executive’s level and include, among other things, two or three times the executive’s base salary and bonus and a stipend equal to two or three times the annual cost of certain employee benefits. See “– Potential Payments Upon Termination or Change in Control – Senior Executive Severance Plan.”

The Compensation Committee believes that a change in control transaction, or potential change in control transaction, would create uncertainty regarding the continued employment of our executives. This is because many change in control transactions result in significant organizational changes, particularly at the senior executive level. In order to encourage our executives to remain employed with us during an important time when their continued employment in connection with or following a transaction is often uncertain and to help keep our executives focused on our business rather than on their personal financial security, we believe that providing certain of our executives with severance benefits upon the specified terminations of employment is in the best interests of our company and our shareholders.

The benefits under the Senior Executive Severance Plan are not payable merely because a change in control transaction occurs or is imminent. Instead, payment of the severance benefits is only triggered if a change in control has occurred or is imminent and certain types of termination of employment occur within certain limited time periods. The Compensation Committee has determined that this “double trigger” requirement is appropriate and reasonable.

If benefits are triggered under the Senior Executive Severance Plan, our Chief Executive Officer would be entitled to payments under the “three times” multiplier and the other covered executives would be entitled to payments under the “two times” multiplier. Our Chief Executive Officer would also be entitled to certain benefits that would not be available to the other covered executives, including that our Chief Executive Officer would receive a tax gross-up payment on any excise taxes and that his severance benefits would not be limited in the event of the imposition of an excise tax. The Compensation Committee believes that our Chief Executive Officer should receive the higher multiplier and the enhanced benefits given his high level of responsibility and the substantial duties that he has with us, as well as the fact that it is common market practice for a chief executive officer to receive a higher level of severance benefits than other executive officers.

The amount and type of severance pay made available to our executive officers are based on common and typical amounts and types of severance pay that were made available to executives by other publicly-traded companies at the time that these benefits were determined.

Other Plans. In addition, awards granted under our equity compensation plans and all or a portion of the contributions, benefits and earnings under our qualified savings plan, nonqualified deferred compensation plans and pension plans may vest and/or become payable to the participating employees, including the Named Executive Officers, if the participating employee’s employment terminates in certain situations or we undergo a change in control. See “– Potential Payments Upon Termination or Change In Control.” The accelerated vesting and payments are useful in providing security to our executives and helps them to focus on their job responsibilities, instead of the safety of compensation that they have previously been awarded or paid. Further, the accelerated vesting of equity compensation awards upon a change in control:

• provides employees with the same opportunities as shareholders, who are free to sell their equity at the time of the change in control event and thereby realize the value created at the time of the transaction;

-96-

• ensures that employees do not have the fate of their outstanding equity tied to the future success of the new and different company that results from the change in control;

• can be a strong retention device during change in control discussions, particularly for those employees whose equity represents a significant portion of their total pay package; and

• treats all employees the same regardless of their employment status after the transaction.

Process for Establishing Compensation. The Compensation Committee of our Board of Directors has overall responsibility and authority for approving and evaluating the compensation programs and policies pertaining to our executives and Directors. Each year, the Compensation Committee reviews all elements of all of our executive officers’ compensation and the internal pay equity of our Chief Executive Officer’s compensation compared to our other executive officers’ compensation. The Compensation Committee also annually reviews the tally of total compensation of our executives in order to determine that the amount of compensation is within appropriate competitive parameters. The tally information is not, however, a key factor in the Committee’s current compensation decisions, because the tally information is reflective of past competitive market practice.

The Compensation Committee has met, and will continue to meet, in executive sessions which are not attended by any of our employees. The Committee regularly reports its activities to our Board of Directors.

When making executive compensation decisions, the Compensation Committee also considers, for all executives other than our Chief Executive Officer, the recommendation of our Chief Executive Officer. Our Chief Executive Officer recommends salary levels, short-term compensation amounts, equity-based compensation awards and perquisites for our other executives based on their salary grade level. Our Chief Executive Officer’s compensation is determined solely by the Compensation Committee with the assistance of the Committee’s independent compensation consultant. The Compensation Committee applies the same principles for executive compensation in determining our Chief Executive Officer’s compensation that it applies in determining the compensation of our other executive officers. The Compensation Committee has established a higher level of compensation for our Chief Executive Officer than the levels for our other executive officers, due to:

• the high level of responsibility that he has with us;

• the substantial duties and responsibilities that he has to us; and

• the fact that the market and comparator compensation information demonstrates higher levels of compensation for chief executive officers both within and outside of our industry.

Independent Compensation Consultant. The Compensation Committee directly retains consultants from independent compensation consulting firms to provide advice on aspects of our executive and Director compensation programs. The Committee requests written reports and holds meetings with the consultants, which are not attended by any of our employees, in order to obtain independent opinions on compensation proposals. The independent compensation consultants help the Committee determine the amount and, where applicable, the formula for each element of the compensation program for each executive. The independent compensation consultants also assist the Committee in selecting the companies used for benchmarking and comparison purposes. The Compensation Committee retained the independent compensation consulting firm Farient to advise it on 2013 compensation determinations and retained the independent compensation consulting firm Towers Watson in the later part of 2013 to advise it on 2014 compensation determinations.

Determinations. In determining and recommending the compensation of our executives, the Compensation Committee consults with its independent compensation consulting firms and, along with our Chief Executive Officer, makes assessments after deliberate and thorough review and consideration of various factors. In 2013 and 2014, these factors included:

• the competitive marketplace and, in particular, how the level of an executive’s compensation compares with the compensation paid to executives in the same or similar positions and with similar responsibilities at comparator companies;

• the level and area of job responsibilities of the executive;

• inflationary factors; and

• tenure and industry knowledge and experience.

In January 2013, the Compensation Committee met in executive session to review a tally of the total compensation received by each of the executive officers in 2012 and information provided by Farient. The Committee noted that there had not been any clarification by the ED regarding the types of compensation that are prohibited and which activities and employees are covered by the Incentive Compensation Prohibition and, therefore, it would continue to avoid basing executive compensation on performance-related metrics. In February 2013, the Committee determined to continue the short-term compensation element of executive compensation, and it established the management objectives for 2013 under such element. See “—Compensation Elements—2013 Compensation—Short-Term Compensation.”

In January 2014, the Compensation Committee met in executive session to review a tally of the total compensation received by each of the executive officers in 2013 and information provided by Towers Watson. The Committee noted that there still had not been any clarification regarding the types of compensation that are prohibited and which activities and employees are covered by the Incentive Compensation Prohibition and, therefore, it would continue to avoid basing executive compensation on performance-related metrics. In January 2014, the Committee determined to continue the short-term compensation element of executive compensation, and it established the management objectives for 2014 under such element. See “—Compensation Elements—2014 Compensation—Short-Term Compensation.”

-97-

Shareholder Feedback. In October 2013 and January 2014, the Compensation Committee considered the fact that, at the 2013 Annual Meeting of Shareholders, our shareholders approved the compensation paid to our Named Executive Officers as disclosed in the Proxy Statement for our 2013 Annual Meeting, and that the votes cast for that advisory proposal totaled approximately 54% of the shares represented at the 2013 Annual Meeting. The Committee also considered discussions that our Chairman and Chief Executive Officer had prior to the 2013 Annual Meeting with certain of our shareholders that own a significant percentage of our common stock regarding our executive compensation program and any concerns that such shareholders had related to it. Our Chairman and Chief Executive Officer was told by some of those shareholders that while they would prefer that we base executive compensation on performance-related metrics, as we did prior to 2011, they understand that we have concluded that to do so would present a significant risk of violating the Incentive Compensation Prohibition. Despite understanding these limitations on our executive compensation program, some of those shareholders may be required to follow formulaic internal or external voting guidelines and, therefore, may be forced to cast a vote against our executive compensation proposal when otherwise they may not have. In addition, some of the shareholders expressed their support for the Compensation Committee’s objective that the compensation of executives be reflective of the competitive marketplace in an effort to attract, retain and motivate talented executives. None of the shareholders that our Chairman and Chief Executive Officer talked to identified any other areas of concern related to our executive compensation program. The Compensation Committee evaluated the feedback received from these shareholders and the results of the 2013 advisory vote on compensation, and reiterated that it too would prefer to include performance-based metrics in our executive compensation program, but that the risk of violating the Incentive Compensation Prohibition is too high. As a result, the Committee determined that it is not able to make changes to the program at this time to address concerns related to the lack of performance-based metrics. The Committee noted that it continues to monitor the ED for any guidance that might reduce the risk of certain types of performance-based compensation violating the Incentive Compensation Prohibition.

Equity-Based Compensation. The Compensation Committee is responsible for determining equity-based compensation paid to our executives. All equity-based compensation awards to our executives at the Senior Vice President level and above are granted exclusively by our Compensation Committee. The Compensation Committee has delegated limited authority to our Chief Executive Officer to grant equity-based compensation awards to our newly-hired executives below the Senior Vice President level and other key employees.

Equity-based compensation is granted to our executives and other key employees under the following circumstances:

• the Compensation Committee has typically made grants to our executives and other key employees annually during its first regularly scheduled meeting of the calendar year, which grants become effective prospectively;

• the Compensation Committee has typically made grants to our newly-hired executives at the Senior Vice President level and above at a Committee meeting occurring either:

• prior to the date that the executive’s employment with us begins, in which case the effective date of the grant is typically the executive’s first day of employment with us but, if the markets are closed on that day, is the next subsequent day that the markets are open; or

• after the executive’s employment with us begins, in which case the effective date of the grant is the date of the Committee meeting or a subsequent date specified by the Committee at its meeting; and

• pursuant to authority delegated to him by the Compensation Committee, our Chief Executive Officer typically grants equity-based compensation to our newly-hired executives below the Senior Vice President level and other key employees on the newly-hired employee’s first day of employment with us.

In each of the above circumstances, the exercise price of any stock option granted is the closing market price of a share of our common stock on the effective date of the stock option grant. In addition, the number of any RSUs or shares of restricted stock is either determined prior to the effective date of grant or is based on the closing market price of a share of our common stock on the effective date of the RSU or restricted stock grant.

We do not time our release of material non-public information for the purpose of affecting the value of our executives’ compensation, nor do we time our grants of equity-based compensation to take advantage of material non-public information. Nevertheless, our process for granting equity-based compensation (as described above) may result in equity-based compensation, including stock options, being granted to our executives and other key employees at times when our Board of Directors or the Compensation Committee is in possession of material non-public information about us. This possibility is not taken into account in determining whether to make the equity-based compensation awards or the amount or value of those awards.

Benchmarking. The Compensation Committee believes that compensation decisions are complex and should be made after a review of the compensation levels paid to executives in the same or similar positions at other comparator companies. Although the Compensation Committee does not rely solely on benchmarking to determine any element of compensation or overall compensation, the Compensation Committee does believe that compensation data are important to the decisions made regarding the competitive positioning of the Company’s compensation levels.

In setting and administering the compensation program and policies for our executives, the Committee attempts to target:

• the cash portion of the compensation of our executives to the median of the range of the cash compensation provided to executives of comparator companies, based on the dollar amount of such compensation; and

• the equity-based compensation of our executives not to exceed the upper quarter of the range of equity-based compensation provided to executives of comparator companies, based on the number of shares awarded as a percentage of the number of shares outstanding.

-98-

This is intended to result in targeting the overall total direct compensation of our executives to the upper third of the range of compensation provided to executives of comparator companies. The Committee targets the upper third of the range, because it believes that part of the range will help us attract and retain a higher than average level of executive.

The companies used for the comparisons vary from time to time. For 2013 compensation determinations, the Compensation Committee benchmarked the appropriateness and competitiveness of our executive compensation program against a market composite that consisted of 13 companies in our industry and a subset of six of those market comparator companies that were selected by Farient based on their size, type of operations and longevity in the industry. The 13 companies in our industry that were used included:

•       American Public Education, Inc.;	•       Education Management Corporation;
•       Apollo Education Group, Inc.;	•       Grand Canyon Education, Inc.;
•       Bridgepoint Education, Inc.;	•       Learning Tree International, Inc.;
•       Capella Education Company;	•       Lincoln Educational Services Corporation;
•       Career Education Corp.;	•       Strayer Education, Inc.; and
•       Corinthian Colleges, Inc.;	•       Universal Technical Institute, Inc.
•       DeVry Education Group, Inc.;

The six companies that were included in the industry subset were as follows:

•       Apollo Education Group, Inc.;	•       DeVry Education Group, Inc.;
•       Career Education Corp.;	•       Education Management Corporation; and
•       Corinthian Colleges, Inc.;	•       Strayer Education, Inc.

In order to provide benchmark data for executive positions not included in proxy materials, the Compensation Committee also reviewed compensation information in connection with its 2013 compensation determinations that is contained in the:

• 2011 Mercer Executive Compensation Database, which consists of a broad market survey of companies that generated between $1 billion and $2.5 billion in annual revenue; and

• 2012 Towers Watson General Industry Top Management Compensation Report, which consists of a broad market survey of companies that generated between $500 million and $2.5 billion in annual revenue.

For 2014 compensation determinations, the Compensation Committee reviewed compensation information provided by Towers Watson and contained in the 2013/2014 Towers Watson Compensation DataBank (“Towers Watson Survey”) and the 2013/2014 Mercer Executive Compensation Database (“Mercer Survey”). The Towers Watson Survey consisted of 241 companies with less than $3 billion in annual revenue. The Mercer Survey consisted of 445 companies. The Compensation Committee did not select specific companies from among the survey participants. Information from the surveys was adjusted to our company’s size by using regression analysis to reflect each executive’s scope of revenue responsibility.

Additionally, our Compensation Committee used information from proxy statements of a company-specific peer group as a supplement to the general industry published survey data, which remains a primary data source given the similarity in size to our company of the companies included. The proxy peer group data was primarily used for the Chief Executive Officer and Chief Financial Officer positions, because these positions are most directly comparable to the positions at our company. The proxy peer group companies were used for industry financial comparison purposes and as a source of data for compensation plan design characteristics. In consultation with Towers Watson, the Compensation Committee considered the following characteristics in choosing which companies to include in the peer group:

• U.S.-based companies that either compete with our company for market share or operate in similar industries as our company;

• competitors for senior executive talent;

• revenue and market capitalization; and

• the degree to which certain companies list our company as a compensation peer.

As part of its engagement, Towers Watson reviewed the peer group used in 2013 and Towers Watson recommended, and the Compensation Committee approved, the following changes to the peer group:

• removed Learning Tree International, Inc., due to its revenue size relative to our company; and

• added K12 Inc., because of its industry alignment and size relative to our company.

-99-

As a result, the Compensation Committee reviewed proxy data obtained from proxy materials of the following 13 companies in our industry:

•       American Public Education, Inc.;	•       Education Management Corporation;
•       Apollo Education Group, Inc.;	•       Grand Canyon Education, Inc.;
•       Bridgepoint Education, Inc.;	•       K12 Inc.;
•       Capella Education Company;	•       Lincoln Educational Services Corporation;
•       Career Education Corp.;	•       Strayer Education, Inc.; and
•       Corinthian Colleges, Inc.;	•       Universal Technical Institute, Inc.
•       DeVry Education Group, Inc.;

Additional Compensation Matters.

Clawback, Stock Ownership and Hedging Policies. We do not have any policies regarding automatic adjustment or recovery of compensation paid or awarded to our executives in the event any of the performance measures upon which that compensation was paid or awarded are restated or adjusted, such that the compensation paid or awarded would have been less under the restated or adjusted performance measures.

We do not impose any specific equity or security ownership requirements on our executives. We believe that the equity-based compensation paid to our executives serves to align their interests with those of our shareholders. We believe that it is improper and inappropriate for any employee or Director to engage in short-term or speculative transactions involving our securities. It is our policy that our executives and Directors are prohibited from purchasing or selling any publicly traded options for our securities, including the trading of any call or put, the writing of any call or put, hedging or the use of collars.

The Impact of Accounting and Tax Treatments on the Compensation. Section 162(m) of the Internal Revenue Code of 1986, as amended (the “IRC”) limits the allowable deduction for compensation paid or accrued with respect to the chief executive officer and each of the three other most highly compensated executive officers (other than the chief financial officer) of a publicly held corporation to no more than $1 million per year. This limitation does not apply to compensation that meets the requirements under Section 162(m) and the regulations promulgated thereunder for “qualified performance-based” compensation. Our equity-based compensation plans have been approved by our shareholders and include a fixed limit on the number of stock options that may be granted to any individual in any given year, and the exercise price is based on the fair market value of our stock on the date of grant. As a result, any future gains that may be realized on the stock options granted under our equity-based compensation plans would be exempt from the $1 million limit on deductible compensation under Section 162(m). RSUs granted under our equity compensation plans, however, are subject to the 162(m) deduction limitation because the vesting of those RSUs is based on the passage of time instead of performance conditions. Further, the Committee’s ability to maximize the tax deductibility of other forms of compensation beginning July 1, 2011 is limited by the Incentive Compensation Prohibition, because those regulations can be reasonably interpreted to prohibit the payment of performance-based compensation.

Section 409A of the IRC provides certain requirements for deferred compensation arrangements. Those requirements, among other things, limit flexibility with respect to the time and form of payment of deferred compensation. If a payment or award constitutes deferred compensation subject to Section 409A and the applicable requirements are not satisfied, the recipient could be subject to tax on the award and all other deferred compensation of the same type, and an additional 20% tax and interest at the underpayment rate plus 1%, at the time the legally binding right to the payment or award arises or, if later, when that right ceases to be subject to a substantial risk of forfeiture. Payments or awards under our plans and arrangements either are intended to not constitute “deferred compensation” for Section 409A purposes (and will thereby be exempt from Section 409A’s requirements) or, if they constitute “deferred compensation,” are intended to comply with the Section 409A statutory provisions and final regulations.

Compensation Committee Report

The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K under the Exchange Act with our management. Based on that review and discussions, the Compensation Committee recommended to our Board of Directors that the Compensation Discussion and Analysis be included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2013 and in our Proxy Statement for our 2014 Annual Meeting of Shareholders for filing with the U.S. Securities and Exchange Commission.

Compensation Committee

John F. Cozzi

James D. Fowler, Jr.

Samuel L. Odle

John A. Yena, Chair

Compensation-Related Risk Assessment

Our Compensation Committee conducted an assessment of the risks related to our compensation policies and practices in January 2014. In conducting this assessment, the Compensation Committee noted several features of our compensation programs that reduce the likelihood of excessive risk-taking, including the following:

• We have established internal controls, enterprise risk management and a compliance program to discourage and identify any excessive risk-taking by our employees.

-100-

• There is a balanced mix of cash, equity, annual and longer-term components in the compensation program for our executives.

• Due to the Incentive Compensation Regulations, our compensation programs are not based on the performance of our employees.

• While our short-term compensation element is based on certain management objectives for a particular year:

• the maximum short-term compensation percentage is capped at 200% of the standard short-term percentage of our executives’ annualized base salary, to protect against disproportionately large shorter-term incentives;

• the Compensation Committee has substantial discretion on which to base the actual amount of the short-term compensation payments, including the ability to consider and reduce a payment amount if the Committee determines that an executive caused us to incur unnecessary or excessive risk;

• the management objectives include many different business objectives that are company-wide objectives, as opposed to individual objectives, which encourage decision-making that is in the best long-term interests of our company and shareholders; and

• the management objectives are not unreasonable or clearly unattainable without excessive risk-taking.

• A significant portion of our executives’ total compensation consists of equity-based long-term awards, most of which vest over a period of three years, which encourages our executives to focus on sustaining our long-term interests. The equity grants are also made annually, so executives always have unvested awards that could decrease in value if our business is not managed for the long term.

• Some of our non-executive employees are eligible to receive equity awards. For those non-executive employees who are eligible to receive equity awards, the equity awards encourage those employees to focus on our long-term interests.

Based on these factors, the Compensation Committee believes that our compensation policies and practices encourage behaviors that are aligned with our long-term interests, and that numerous factors, such as the lack of performance-related incentives, dissuade our employees from taking risks for short-term gain. As a result, the Compensation Committee determined that any risks arising from our compensation policies and practices are not reasonably likely to have a material adverse effect on us.

Summary Compensation Table

The following table sets forth information regarding the compensation of the Named Executive Officers for each of our last three completed fiscal years.

Summary Compensation Table for Fiscal Years 2013, 2012 and 2011

Name and Principal Position	Year	Salary (1)		Bonus (2)		Stock Awards (3)		Option Awards(4)		Non-Equity Incentive Plan Compensation (5)		Change in Pension Value and Non- qualified Deferred Compensation Earnings (6)		All Other Compensation(7)		Total (8)
(a)	(b)	(c)		(d)		(e)		(f)		(g)		(h)		(i)		(j)
Kevin M. Modany Chief Executive Officer	2013	$	798,596	$	0	$	543,094	$	572,500	$	1,000,093	$	3,011	$	55,333	$	2,972,627
	2012	$	788,250	$	985,313	$	4,962,439	$	1,960,000	$	0	$	10,857	$	56,525	$	8,763,384
	2011	$	783,438	$	1,153,500	$	788,308	$	3,612,500	$	0	$	10,664	$	64,044	$	6,412,454
Daniel M. Fitzpatrick Executive Vice President, Chief Financial Officer	2013	$	391,915	$	0	$	130,343	$	137,400	$	325,000	$	0	$	19,468	$	1,004,126
	2012	$	334,905	$	272,448	$	930,556	$	344,960	$	0	$	0	$	15,722	$	1,898,591
	2011	$	330,000	$	324,000	$	381,101	$	476,850	$	0	$	0	$	15,976	$	1,527,927
Eugene W. Feichtner Executive Vice President and President, ITT Technical Institute Division	2013	$	309,535	$	0	$	86,895	$	91,600	$	232,581	$	214	$	10,949	$	731,774
	2012	$	305,147	$	229,144	$	846,903	$	313,600	$	0	$	61,046	$	11,454	$	1,767,294
	2011	$	300,625	$	295,000	$	481,983	$	289,000	$	0	$	75,601	$	11,499	$	1,453,708
June M. McCormack Executive Vice President and President, Online Division	2013	$	258,596	$	0	$	86,895	$	91,600	$	207,593	$	0	$	10,794	$	655,478
	2012	$	272,363	$	204,525	$	744,760	$	313,600	$	0	$	0	$	12,322	$	1,547,570
	2011	$	268,250	$	263,000	$	762,897	$	0	$	0	$	0	$	13,145	$	1,307,292
Glenn E. Tanner Executive Vice President, Chief Marketing Officer	2013	$	258,628	$	0	$	86,895	$	91,600	$	194,330	$	732	$	8,741	$	640,926
	2012	$	254,956	$	191,459	$	733,411	$	313,600	$	0	$	21,105	$	10,534	$	1,525,065
	2011	$	251,025	$	246,600	$	752,552	$	0	$	0	$	28,779	$	9,484	$	1,288,440

(1) Amounts shown represent the dollar value of base salary earned during each of the years indicated.

-101-

(2) Amounts shown represent the dollar value of discretionary bonus amounts earned in the stated year. Under Item 402(a) of Regulation S-K under the Exchange Act, any bonus award that is paid above the amounts earned by the Named Executive Officer under, or that is otherwise paid to the Named Executive Officer without regard to, pre-established targets is to be reported in this column. The amounts earned under pre-established targets are reported in column (g), “Non-Equity Incentive Plan Compensation,” of the Summary Compensation Table. The amounts shown in this column for 2012 consist of amounts paid under the short-term compensation element of our executive compensation, based on certain management objectives for 2012 (the “2012 Management Objectives”). In December 2012, the Compensation Committee decided to assign zero to five points to each 2012 Management Objective based on the extent to which it was accomplished, instead of the previously-established determination to assign five points to each 2012 Management Objective only if it was fully accomplished. This change resulted in these payments being included in this column instead of in the “Non-Equity Incentive Plan Compensation” column of the Summary Compensation Table. The amounts shown in this column for 2011 consist of a special bonus that was paid to our executives in June 2011. The Compensation Committee approved the special bonuses in December 2010, to be paid to our executives who were still employed by us on June 27, 2011, in order to help motivate and retain those executives, as well as to recognize their extraordinary efforts during a particularly difficult regulatory and legislative environment affecting us and our industry.

(3) Amounts shown represent the aggregate grant date fair value, computed in accordance with ASC 718, of all awards of stock granted to the Named Executive Officer in the year indicated. For 2011, amounts shown include grants of RSUs that settled in cash and grants of RSUs that settle in shares of our common stock. To determine the grant date fair value of stock awards, we use the closing market price of a share of our common stock on the effective date of the stock award. The amounts ultimately realized by the Named Executive Officers from the stock awards will depend on the price of our common stock in the future and may be quite different from the values shown.

(4) Amounts shown represent the aggregate grant date fair value, computed in accordance with ASC 718, of all awards of stock options granted to the Named Executive Officer in the year indicated. The option awards relate solely to shares of our common stock. None of the Named Executive Officers has received any stock appreciation rights (“SARs”) from us. We did not adjust or amend the exercise price of any options previously awarded to any of the Named Executive Officers, whether through amendment, cancellation or replacement grants, or any other means (such as a repricing), or otherwise materially modify such awards, during any of the years indicated. We used a binomial option pricing model to determine the grant date fair value of the stock options granted in each of the years indicated, which takes into account the variables defined below:

• “Volatility” is a statistical measure of the extent to which the stock price is expected to fluctuate during a period and combines our historical stock price volatility and the implied volatility as measured by actively traded stock options.

• “Expected life” is the weighted average period that those stock options are expected to remain outstanding, based on the historical patterns of our stock option exercises, as adjusted to reflect the current position-level demographics of the stock option grantees.

• “Risk-free interest rate” is based on interest rates for terms that are similar to the expected life of the stock options.

• “Dividend yield” is based on our historical and expected future dividend payment practices.

The following table sets forth the assumptions supporting those variables that were used to determine the values reported with respect to the stock options granted to the Named Executive Officers in each of the years indicated:

	Assumptions Associated with Stock Options Granted In
	2013			2012			2011
Volatility		60	%		51	%		48	%
Expected life (in years)		4.6			4.5			4.7
Risk-free interest rate		0.7	%		0.7	%		1.8	%
Dividend yield		None			None			None

The amounts ultimately realized by the Named Executive Officers from the option awards will depend on the price of our common stock in the future and may be quite different from the values shown.

(5) Amounts shown represent the dollar value of all amounts earned for services performed during each of the years indicated pursuant to awards under non-equity incentive plans. There were no earnings on any outstanding non-equity incentive plan awards during any of the years indicated. The amounts reported in this column for 2013 consist of amounts earned under the short-term compensation element of our executive compensation, based on the 2013 Management Objectives, and paid in 2014. Under Item 402(a) of Regulation S-K under the Exchange Act, our short-term compensation element is defined to be non-equity incentive plan compensation, instead of bonus compensation, to the extent that the outcome with respect to the relevant targets under our management objectives was substantially uncertain at the time the targets were established by the Compensation Committee and communicated to the participants. As a result, our short-term compensation element is intended to serve as an incentive to obtain results over a specified fiscal year, which caused it to be reported in this column. Amounts shown in this column include any portion of the award that may have been deferred by the Named Executive Officers under the Deferred Bonus Plan. See “– Nonqualified Deferred Compensation Plans – Deferred Bonus Plan.”

(6) Amounts shown consist of:

• the aggregate change in actuarial present value of the Named Executive Officer’s accumulated benefit on an annualized basis under all defined benefit and actuarial pension plans (including supplemental plans) from December 31 of the prior completed fiscal year to December 31 of the covered fiscal year, except that with respect to the 2013 aggregate change in

-102-

actuarial present value for all Named Executive Officer participants, that aggregate change was a negative number (see table below), and therefore in accordance with the SEC rule, that negative change is not included in the amount reported in this column or in the “Total” column; and

• the above-market or preferential earnings on compensation that is deferred on a basis that is not tax-qualified, including such earnings on nonqualified defined contribution plans.

The aggregate change in actuarial present value of the Named Executive Officer’s accumulated benefit on an annualized basis under each of the following plans is presented in the table below:

• the Retirement Plan for Salaried Employees of ITT Corporation (the “Old Pension Plan”), a non-contributory defined benefit pension plan;

• the ESI Pension Plan, a cash balance defined benefit plan; and

• the ESI Excess Pension Plan, an unfunded, nonqualified retirement plan.

See “– Pension Plans.”

Named Executive Officer	Old Pension Plan Aggregate Change in Present Value of Accumulated Benefit			ESI Pension Plan Aggregate Change in Present Value of Accumulated Benefit			ESI Excess Pension Plan Aggregate Change in Present Value of Accumulated Benefit			Total
Kevin M. Modany
2013	$	0		$	(1,612	)	$	(2,078	)	$	(3,690	)
2012	$	0		$	3,619		$	4,667		$	8,286
2011	$	0		$	3,905		$	5,034		$	8,939
Daniel M. Fitzpatrick
2013	$	0		$	0		$	0		$	0
2012	$	0		$	0		$	0		$	0
2011	$	0		$	0		$	0		$	0
Eugene W. Feichtner
2013	$	(36,285	)	$	11,788		$	2,893		$	(21,604	)
2012	$	46,795		$	11,286		$	2,782		$	60,863
2011	$	61,583		$	11,091		$	2,803		$	75,477
June M. McCormack
2013	$	0		$	0		$	0		$	0
2012	$	0		$	0		$	0		$	0
2011	$	0		$	0		$	0		$	0
Glenn E. Tanner
2013	$	(21,737	)	$	12,176		$	0		$	(9,561	)
2012	$	8,824		$	11,656		$	0		$	20,480
2011	$	16,911		$	11,451		$	0		$	28,362

In addition, the above-market or preferential earnings on compensation that is deferred on a basis that is not tax-qualified for the benefit of the Named Executive Officers under the ESI Excess Savings Plan, an unfunded, nonqualified retirement plan are specified in the table below. There were no above-market or preferential earnings on compensation that is deferred on a basis that is not tax-qualified for the benefit of the Named Executive Officers under the Deferred Bonus Plan, an unfunded, nonqualified deferred compensation plan, in 2013, 2012 or 2011. See “– Nonqualified Deferred Compensation Plans.”

-103-

Named Executive Officer	ESI Excess Savings Plan Above-Market or Preferential Earnings on  Deferred Compensation (A)
Kevin M. Modany
2013	$	3,011
2012	$	2,571
2011	$	1,725
Daniel M. Fitzpatrick
2013	$	0
2012	$	0
2011	$	0
Eugene W. Feichtner
2013	$	214
2012	$	183
2011	$	124
June M. McCormack
2013	$	0
2012	$	0
2011	$	0
Glenn E. Tanner
2013	$	732
2012	$	625
2011	$	417

(A) Interest is above-market only if the rate of interest exceeds 120% of the applicable federal long-term rate, with compounding (as prescribed under Section 1274(d) of the IRC), at the rate that corresponds most closely to the rate under the applicable plan at the time the interest rate or formula is set. In the event of a discretionary reset of the interest rate, the requisite calculation is made on the basis of the interest rate at the time of such reset, rather than when originally established. Only the above-market portion of the interest is included.

(7) Amounts shown represent all other compensation for each of the years indicated that could not properly be reported in columns (c) through (h) of the Summary Compensation Table, as follows:

	Perquisites (A)
Named Executive Officer	Use of a Company Car (B)		Tax Return and Financial Planning Allowance (C)		Event Tickets (D)		Enhanced Disability Benefits (E)		Annual Physical Examination (F)		Perquisites Total		ITT/ESI Contributions Under ESI 401(k) Plan (G)		All Other Compensation (H)
Kevin M. Modany
2013	$	25,261	$	6,331	$	6,487	$	6,422	$	3,182	$	47,683	$	7,650	$	55,333
2012	$	25,280	$	14,230	$	2,334	$	6,503	$	2,665	$	51,012	$	5,513	$	56,525
2011	$	23,674	$	15,765	$	11,083	$	6,503	$	0	$	57,025	$	7,019	$	64,044
Daniel M. Fitzpatrick
2013	$	0	$	4,000	$	2,056	$	3,222	$	2,540	$	11,818	$	7,650	$	19,468
2012	$	0	$	3,353	$	436	$	2,766	$	1,667	$	8,222	$	7,500	$	15,722
2011	$	0	$	3,320	$	2,898	$	2,739	$	0	$	8,957	$	7,019	$	15,976
Eugene W. Feichtner
2013	$	0	$	3,101	$	0	$	2,502	$	0	$	5,603	$	5,346	$	10,949
2012	$	0	$	3,055	$	604	$	2,521	$	0	$	6,180	$	5,274	$	11,454
2011	$	0	$	3,025	$	887	$	2,496	$	0	$	6,408	$	5,091	$	11,499
June M. McCormack
2013	$	0	$	2,669	$	0	$	2,236	$	0	$	4,905	$	5,889	$	10,794
2012	$	0	$	2,649	$	150	$	2,250	$	1,761	$	6,810	$	5,512	$	12,322
2011	$	0	$	2,700	$	0	$	2,228	$	2,666	$	7,594	$	5,551	$	13,145
Glenn E. Tanner
2013	$	0	$	2,591	$	1,383	$	2,094	$	0	$	6,068	$	2,673	$	8,741
2012	$	0	$	2,550	$	1,558	$	2,106	$	1,681	$	7,895	$	2,639	$	10,534
2011	$	0	$	2,528	$	727	$	2,085	$	1,569	$	6,909	$	2,575	$	9,484

(A) Amounts shown represent the aggregate incremental cost to us for the perquisites provided to the Named Executive Officers in each of the years indicated.

(B) The methodology for computing the aggregate incremental cost to us for providing use of a company car involves compiling the expenses that were paid by us or reimbursed to the Named Executive Officer for the Named Executive Officer’s use of the vehicle. Those expenses include:

• the amount of depreciation expense that we recognized on the company-owned car;

-104-

• the cost of insurance premiums relating to the car that were paid by us;

• the cost of gasoline used in the car that was paid or reimbursed by us; and

• the cost of maintenance and repairs of the car that was paid or reimbursed by us.

(C) The methodology for computing the aggregate incremental cost to us for providing a tax return and financial planning allowance involves determining the sum of all receipts for tax return and financial planning services that are submitted by and reimbursed to the Named Executive Officer up to the amount of the allowance authorized by the Compensation Committee (i.e., 2% of annualized base salary as of the effective date of any increase in base salary for that fiscal year for Mr. Modany, and 1% of annualized base salary as of the effective date of any increase in base salary for that fiscal year for each of the other Named Executive Officers).

(D) The methodology for computing the aggregate incremental cost to us for providing event tickets involves identifying the specific events that the Named Executive Officer and his or her guests attended during the year and attributing the actual costs paid by us or reimbursed to the Named Executive Officer for the Named Executive Officer and his or her guests to attend the event. Those costs include:

• the portion of a license fee for a private suite and associated spectator seats used by the Named Executive Officer and his or her guests;

• the cost of food and beverages consumed by the Named Executive Officer and his or her guests in connection with the event;

• the cost of tickets used by the Named Executive Officer and his or her guests to attend the event; and

• the cost of parking fees incurred by the Named Executive Officer and his or her guests to attend the event.

(E) The methodology for computing the aggregate incremental cost to us for providing enhanced disability benefits involves:

• multiplying the monthly charge to us per employee for the enhanced short-term disability benefits by the number of months;

• multiplying the annual charge to us per $100 of coverage for the enhanced long-term disability benefits by the number of $100 increments in the coverage; and

• adding together the sum of the amounts calculated in the prior two bullet points.

(F) The methodology for computing the aggregate incremental cost to us for providing annual physical examinations involves determining the expenses for such examination that have been paid by us directly to the provider or reimbursed to the Named Executive Officer.

(G) Amounts shown represent our contributions or other allocations made under the ESI 401(k) Plan, a defined contribution plan, for the benefit of the Named Executive Officers in each of the years indicated. See “– Equity Compensation and Qualified Savings Plans – ESI 401(k) Plan.”

(H) Amounts shown do not include our cost for employee benefits that do not discriminate in scope, terms or operation in favor of our executive officers and that are available generally to all full-time and part-time regular employees, including, without limitation, medical and dental benefits, vision insurance, life insurance, flexible spending account, business travel and accident insurance, and disability insurance.

(8) Amounts shown represent the sum of the dollar values for each compensation element in columns (c) through (i) in each of the years indicated.

-105-

Amount of Salary and Bonus in Proportion to Total Compensation

The salary, non-equity incentive plan and bonus compensation and salary, non-equity incentive plan and bonus compensation, as a percentage of each Named Executive Officer’s total compensation, for the years indicated was as follows:

Named Executive Officer	Salary		Non-Equity Incentive Plan and Bonus Compensation (1)		Salary and Non- Equity Incentive Plan and Bonus Compensation (1)		Total Compensation (2)		Salary as a Percentage of Total Compensation			Non-Equity Incentive Plan and Bonus Compensation as a Percentage of Total Compensation			Salary and Non- Equity Incentive Plan and Bonus Compensation as a Percentage of Total Compensation
Kevin M. Modany
2013	$	798,596	$	1,000,093	$	1,798,689	$	2,972,627		26.9	%		33.6	%		60.5	%
2012	$	788,250	$	985,313	$	1,773,563	$	8,763,384		9.0	%		11.2	%		20.2	%
2011	$	783,438	$	1,153,500	$	1,936,938	$	6,412,454		12.2	%		18.0	%		30.2	%
Daniel M. Fitzpatrick
2013	$	391,915	$	325,000	$	716,915	$	1,004,126		39.0	%		32.4	%		71.4	%
2012	$	334,905	$	272,448	$	607,353	$	1,898,591		17.6	%		14.4	%		32.0	%
2011	$	330,000	$	324,000	$	654,000	$	1,527,927		21.6	%		21.2	%		42.8	%
Eugene W. Feichtner
2013	$	309,535	$	232,581	$	542,116	$	731,774		42.3	%		31.8	%		74.1	%
2012	$	305,147	$	229,144	$	534,291	$	1,767,294		17.3	%		13.0	%		30.2	%
2011	$	300,625	$	295,000	$	595,625	$	1,453,708		20.7	%		20.3	%		41.0	%
June M. McCormack
2013	$	258,596	$	207,593	$	466,189	$	655,478		39.5	%		31.7	%		71.1	%
2012	$	272,363	$	204,525	$	476,888	$	1,547,570		17.6	%		13.2	%		30.8	%
2011	$	268,250	$	263,000	$	531,250	$	1,307,292		20.5	%		20.1	%		40.6	%
Glenn E. Tanner
2013	$	258,628	$	194,330	$	452,958	$	640,926		40.4	%		30.3	%		70.7	%
2012	$	254,956	$	191,459	$	446,415	$	1,525,065		16.7	%		12.6	%		29.3	%
2011	$	251,025	$	246,600	$	497,625	$	1,288,440		19.5	%		19.1	%		38.6	%

(1) The amounts of non-equity incentive plan and bonus compensation reported in this table include the amounts of such compensation as reported in the Non-Equity Incentive Plan Compensation and Bonus columns of the Summary Compensation Table for each of the years indicated.

(2) Amounts shown represent the sum of the dollar values for each compensation element that we are required to report in the Summary Compensation Table for each of the years indicated. See “– Summary Compensation Table.”

Generally in the years indicated, the amount of salary has represented less than 45%, and the amount of salary and non-equity incentive plan and bonus compensation combined has represented approximately 20% to 75%, of the Named Executive Officer’s total compensation. In addition, depending on our results, the amount of non-equity incentive plan compensation in 2012 and 2013 could have ranged from 15% to 200% of the Named Executive Officer’s salary, depending on the Named Executive Officer’s position. As a consequence, the better our results in that year, the greater the percentage that non-equity incentive plan compensation represented of the Named Executive Officer’s total compensation for that year. This result corresponded to the goal of the compensation program for our executives and with the Compensation Committee’s intentions prior to July 1, 2011. The increases in non-equity incentive plan and bonus compensation, and salary and non-equity incentive plan and bonus compensation, in each case as a percentage of total compensation, in 2013 compared to 2011 and 2012 were primarily due to no supplemental equity awards being made in 2013 and the lower grant date value of equity awards in 2013 as a result of a lower stock price.

Form W-2, Wage and Tax Statement Compensation Table

The Form W-2, Wage and Tax Statement Compensation Table below supplements the SEC-required disclosure in the Summary Compensation Table set forth above. The Form W-2, Wage and Tax Statement Compensation Table below sets forth the total taxable wages, tips and other compensation (collectively, “Wages”) that we paid to the Named Executive Officers in each of the last five calendar years, as shown in Box 1 of the U.S. Internal Revenue Service’s Form W-2, Wage and Tax Statement that we provided to the Named Executive Officers with respect to each of those calendar years. Total compensation as calculated under the SEC’s rules and as shown in the Summary Compensation Table above and in prior year’s Proxy Statements includes several items that are driven by accounting and actuarial assumptions, which are not necessarily reflective of the Wages that we paid to the Named Executive Officers in a particular calendar year.

Amounts shown in the Total Wages column below differ substantially from, and should not be considered a substitute for, the amounts shown in the Total column of the Summary Compensation Table. The Total Wages amounts in the table below represent:

• amounts paid as salary to the Named Executive Officer in the applicable year, less any tax-qualified deductions such as contributions or premiums paid by the Named Executive Officer to the ESI 401(k) Plan, certain health and welfare benefit plans and health savings accounts;

-106-

• amounts paid as bonus, non-equity incentive plan compensation and short-term compensation to the Named Executive Officer in the applicable year;

• the value realized from the exercise of stock options by the Named Executive Officer in the applicable year, determined by subtracting the exercise price of the option from the market price of a share of our common stock at exercise, and then multiplying that amount by the total number of shares acquired on exercise at that exercise price;

• the value realized from the vesting of RSUs held by the Named Executive Officer in the applicable year, determined, for stock-settled RSUs, by multiplying the number of RSUs vested by the market price of a share of our common stock on the vesting date, and for cash-settled RSUs, by multiplying the number of RSUs vested by the average of the closing market prices of our common stock over the 20 trading day period prior to the settlement date;

• the value of noncash payments, including certain fringe benefits, made to the Named Executive Officer in the applicable year;

• the taxable cost of group-term life insurance in excess of $50,000 for the Named Executive Officer in the applicable year; and

• the taxable amount of all other compensation paid to the Named Executive Officer in the applicable year.

Form W-2, Wage and Tax Statement Compensation Table

Name and Principal Position	Year		Total Wages (1)		Summary Compensation Table Total Compensation (2)		Difference (3)			Total Wages as a Percentage of Summary Compensation Table Total Compensation
Kevin M. Modany Chief Executive Officer		2013	$	919,595	$	2,972,627	$	(2,053,032	)		30.9	%
		2012	$	5,336,585	$	8,763,384	$	(3,426,799	)		60.9	%
		2011	$	2,419,077	$	6,412,454	$	(3,993,377	)		37.7	%
		2010	$	2,211,344	$	6,745,967	$	(4,534,623	)		32.8	%
		2009	$	1,892,239	$	7,628,172	$	(5,735,933	)		24.8	%
Daniel M. Fitzpatrick Executive Vice President, Chief Financial Officer		2013	$	400,468	$	1,004,126	$	(603,658	)		39.9	%
		2012	$	1,259,366	$	1,898,591	$	(639,225	)		66.3	%
		2011	$	764,326	$	1,527,927	$	(763,601	)		50.0	%
		2010	$	698,426	$	1,429,072	$	(730,646	)		48.9	%
		2009	$	573,278	$	1,794,617	$	(1,221,339	)		31.9	%
Eugene W. Feichtner Executive Vice President and President, ITT Technical Institute Division		2013	$	323,208	$	731,774	$	(408,566	)		44.2	%
		2012	$	1,542,401	$	1,767,294	$	(224,893	)		87.3	%
		2011	$	678,190	$	1,453,708	$	(775,518	)		46.7	%
		2010	$	1,409,800	$	1,327,513	$	82,287			106.2	%
		2009	$	475,002	$	1,601,380	$	(1,126,378	)		29.7	%
June M. McCormack Executive Vice President and President, Online Division		2013	$	297,578	$	655,478	$	(357,900	)		45.4	%
		2012	$	791,344	$	1,547,570	$	(756,226	)		51.1	%
		2011	$	605,789	$	1,307,292	$	(701,503	)		46.3	%
		2010	$	528,924	$	1,239,303	$	(710,379	)		42.7	%
		2009	$	378,997	$	1,512,783	$	(1,133,786	)		25.1	%
Glenn E. Tanner Executive Vice President, Chief Marketing Officer		2013	$	295,617	$	640,926	$	(345,309	)		46.1	%
		2012	$	858,222	$	1,525,065	$	(666,843	)		56.3	%
		2011	$	562,180	$	1,288,440	$	(726,260	)		43.6	%
		2010	$	490,034	$	1,236,442	$	(746,408	)		39.6	%
		2009	$	336,343	$	1,470,653	$	(1,134,310	)		22.9	%

(1) Amounts shown are described above the table.

(2) Amounts shown represent the amounts shown in, or calculated in accordance with the rules for, the Total column of the Summary Compensation Table.

(3) Amounts shown represent the difference between the Total Wages column and the Summary Compensation Table Total Compensation column.

-107-

Grants of Plan-Based Awards Table

The following table sets forth information regarding grants of plan-based awards in 2013 to each of our Named Executive Officers.

Grants of Plan-Based Awards in Fiscal Year 2013

	Grant	Date Compensation Committee Took Action to Grant	Estimated Possible Payouts Under Non- Equity Incentive Plan Awards(2)						All Other Stock Awards: Number of Shares of Stock			All Other Option Awards: Number of Securities Underlying		Exercise or Base Price of Option Awards			Grant Date Fair Value of Stock and Option
Named Executive Officer	Date(1)	Awards	Threshold(3)		Target(4)		Maximum(5)		or Units			Options		($/sh)(6)			Awards(7)
(a)	(b)	(c)	(d)		(e)		(f)		(g)			(h)		(i)			(j)
Kevin M. Modany
Stock Option Award(8)	05/09/13	02/19/13(9)								N/A			62,500	$	19.31	(10)	$	572,500
RSU Award(11)	05/09/13	02/19/13(9)								28,125	(12)		N/A		N/A		$	543,094
2013 Management Objectives(13)	N/A	02/19/13	$	200,019	$	800,074	$	1,600,148		N/A			N/A		N/A			N/A
Daniel M. Fitzpatrick
Stock Option Award(8)	05/09/13	02/19/13(9)								N/A			15,000	$	19.31	(10)	$	137,400
RSU Award(11)	05/09/13	02/19/13(9)								6,750	(12)		N/A		N/A		$	130,343
2013 Management Objectives(13)	N/A	02/19/13	$	65,000	$	260,000	$	520,000		N/A			N/A		N/A			N/A
Eugene W. Feichtner
Stock Option Award(8)	05/09/13	02/19/13(9)								N/A			10,000	$	19.31	(10)	$	91,600
RSU Award(11)	05/09/13	02/19/13(9)								4,500	(12)		N/A		N/A		$	86,895
2013 Management Objectives(13)	N/A	02/19/13	$	46,516	$	186,065	$	372,130		N/A			N/A		N/A			N/A
June M. McCormack
Stock Option Award(8)	05/09/13	02/19/13(9)								N/A			10,000	$	19.31	(10)	$	91,600
RSU Award(11)	05/09/13	02/19/13(9)								4,500	(12)		N/A		N/A		$	86,895
2013 Management Objectives(13)	N/A	02/19/13	$	41,519	$	166,075	$	332,149		N/A			N/A		N/A			N/A
Glenn E. Tanner
Stock Option Award(8)	05/09/13	02/19/13(9)								N/A			10,000	$	19.31	(10)	$	91,600
RSU Award(11)	05/09/13	02/19/13(9)								4,500	(12)		N/A		N/A		$	86,895
2013 Management Objectives(13)	N/A	02/19/13	$	38,866	$	155,464	$	310,928		N/A			N/A		N/A			N/A

“N/A” means not applicable.

(1) Defined as the date of the grant for financial statement reporting purposes pursuant to ASC 718.

(2) Amounts shown represent the dollar value of the estimated possible payout upon satisfaction of the conditions subject to the 2013 short-term compensation element.

(3) “Threshold” refers to the minimum amount payable for a certain level of results under the plan.

(4) “Target” refers to the amount payable, if the specified results target(s) are reached.

(5) “Maximum” refers to the maximum payout possible under the plan.

(6) Amounts shown represent the per-share exercise or base price of the options granted in the fiscal year.

(7) Amounts shown represent the grant date fair value, computed in accordance with ASC 718, of each stock and option award granted to the Named Executive Officer in 2013. There were no adjustments or amendments made in 2013 to the exercise price of any option awards held by any of the Named Executive Officers, whether through amendment, cancellation or replacement grants, or any other means (such as a repricing), or that otherwise materially modified any option awards.

(8) Represents a nonqualified stock option to purchase our common stock that was granted under the Amended 2006 Plan. See “– Equity Compensation and Qualified Savings Plans – Amended 2006 Plan.”

-108-

(9) The awards were granted by the Compensation Committee during a Committee meeting on February 19, 2013 and became effective on May 9, 2013.

(10) Nonqualified stock option granted at 100% of the closing market price of a share of our common stock on the effective date of the grant. One-third of the shares subject to each option granted is exercisable on the anniversary date of the grant in each of the years 2014, 2015 and 2016.

(11) Represents a grant of RSUs that was made under the Amended 2006 Plan. See “—Equity Compensation and Qualified Savings Plans – Amended 2006 Plan.”

(12) The period of restriction for this RSU grant lapses in thirds on the anniversary date of the grant in each of the years 2014, 2015 and 2016. These RSUs will be settled in shares of our common stock, one share for each RSU in the grant.

(13) Represents awards that could be earned pursuant to the 2013 Management Objectives under the short-term compensation element that were approved by the Compensation Committee on February 19, 2013. Amounts actually earned in 2013 are reported in the Summary Compensation Table for that year in the “Non-Equity Incentive Plan Compensation” column. See “– Summary Compensation Table.”

Employment Contracts

We have not entered into an employment contract, whether written or oral, with any of the Named Executive Officers. We entered into a letter agreement with Mr. Modany, however, on August 4, 2014, pursuant to which Mr. Modany will remain our Chief Executive Officer for a period ending on February 4, 2015 (the “Applicable Period”). We may extend the Applicable Period by up to three months and may terminate it at any time upon notice to Mr. Modany. In addition, during the Applicable Period, we are permitted to change Mr. Modany’s role to that of Senior Advisor. Under the terms of the letter agreement, Mr. Modany will resign his position as our Chief Executive Officer on the last day of the Applicable Period.

The letter agreement with Mr. Modany provides that during the Applicable Period, Mr. Modany will continue to receive his current cash compensation and participate in our employee benefit plans, but will not receive any further grants of equity-based compensation. Furthermore, if we terminate the Applicable Period before February 4, 2015, Mr. Monday will be entitled to the cash compensation he would have been paid through that date. During the 18-month period following the Applicable Period, Mr. Modany will serve as a consultant to us in exchange for a monthly fee equivalent to his current monthly base salary and continued vesting of his equity-based awards. Pursuant to the letter agreement, Mr. Modany has agreed that during such 18-month period, he will not compete with us or solicit our customers or employees. The letter agreement also includes confidentiality and cooperation provisions and requires Mr. Modany to execute a release of claims against us. Mr. Modany will not be entitled to receive any severance pay or other separation benefits in connection with his resignation, but we will pay him a lump sum equal to the cost of 18 months of coverage under the Consolidated Omnibus Budget Reconciliation Act of 1984, as amended (“COBRA”), following his execution of the release.

Non-Equity Incentive Plan Awards and Bonuses

The annual short-term compensation element for our executive officers relating to 2013 was based on the 2013 Management Objectives. Pursuant to the SEC’s regulations, the amounts paid pursuant to this compensation element are classified in the tables in this document as non-equity incentive plan compensation, due to the fact that the awards were based on pre-established objectives. The annual short-term compensation element for our executive officers relating to 2012 also was based on management objectives, but because the Compensation Committee determined in late 2012 to assign zero to five points to each 2012 Management Objective based on the extent to which it was accomplished (instead of the previously-established determination to assign five points to each 2012 Management Objective only if it was fully accomplished), the amounts paid pursuant to this compensation element are classified in the tables in this document as bonus compensation, pursuant to the SEC’s regulations. As described in more detail in the Compensation Discussion and Analysis section of this document, because the Incentive Compensation Prohibition became effective on July 1, 2011, our Compensation Committee did not establish performance objectives for purposes of an annual short-term compensation element for 2011. A special bonus, however, was paid to our executives in June 2011, which is classified in the tables in this document as bonus compensation.

Under the Deferred Bonus Plan, each eligible employee may elect to defer payment of all or a portion of his or her annual bonus award in the same form that the bonus is otherwise payable, either in cash or shares of our common stock. See “– Nonqualified Deferred Compensation Plans – Deferred Bonus Plan.” None of the Named Executive Officers deferred any amounts under the Deferred Bonus Plan in 2011, 2012 or 2013.

Equity Compensation and Qualified Savings Plans

1997 Stock Plan. On May 13, 1997, our shareholders approved our adoption of the 1997 ITT Educational Services, Inc. Incentive Stock Plan (the “1997 Stock Plan”), which became effective on the same date and provides for the grant of:

• stock options that are intended to qualify as “incentive stock options” under Section 422 of the IRC;

• nonqualified stock options;

• SARs;

• performance shares and restricted stock; or

• any combination of the foregoing, as the Compensation Committee may determine, as well as substitute stock options, SARs and restricted stock.

-109-

The 1997 Stock Plan expired on May 13, 2007. The only awards that have been granted under the 1997 Stock Plan are nonqualified stock options and restricted stock. As a result of our shareholders’ approval of our adoption of the 2006 Equity Compensation Plan at the 2006 Annual Meeting of Shareholders on May 9, 2006, no awards have been, or will be, made under the 1997 Stock Plan after May 9, 2006. As of December 31, 2013, the total number of shares of our common stock that were subject to unexercised nonqualified stock option awards granted under the 1997 Stock Plan was 80,200. There were no other outstanding awards under the 1997 Stock Plan as of December 31, 2013.

Recipients of awards under the 1997 Stock Plan must be, or have been at the time of grant, key employees (including any officer or Director who is also an employee) whose responsibilities and decisions directly affect our performance or the performance of any of our subsidiaries or other affiliates.

The Compensation Committee administers the 1997 Stock Plan and made determinations with respect to the designation of those employees who would receive awards, the number of shares to be covered by options and restricted stock awards, the exercise price of options and other option terms and conditions. The Compensation Committee may impose such additional terms and conditions on an award as it deems advisable. Shares of our common stock issued under the 1997 Stock Plan may be made available from the authorized but unissued shares of our common stock, from treasury stock or from shares purchased on the open market.

Nonqualified stock options under the 1997 Stock Plan must expire within ten years after grant. The exercise price for nonqualified stock options must be at least equal to the fair market value of our common stock on the date of grant. A nonqualified stock option may be exercised only by the employee who received the option (or his or her estate or designated beneficiary) within:

• five years after the date of his or her termination of employment resulting from the employee’s death, total disability or retirement, but in no event later than the expiration of the original term of the option; or

• three months after the date of his or her termination of employment resulting from any other reason, except for the employee’s voluntary resignation or termination for cause, but in no event later than the expiration of the original term of the option.

If an optionee voluntarily resigns or is terminated for cause, the nonqualified stock options are canceled immediately.

The 1997 Stock Plan provides for the automatic protection of intended economic benefits by key employees upon the occurrence of an acceleration event. See Exhibit No. 10.8 to our Quarterly Report on Form 10-Q for the second fiscal quarter ended June 30, 1997, Exhibit No. 10.38 to our Quarterly Report on Form 10-Q for the second fiscal quarter ended June 30, 2003 and Exhibit No. 10.58 to our Quarterly Report on Form 10-Q for the third fiscal quarter ended September 30, 2006 filed with the SEC for a complete copy of the 1997 Stock Plan, as amended. Notwithstanding any other provisions of the 1997 Stock Plan, upon the occurrence of an acceleration event:

• all options will generally become exercisable immediately for a period of 60 calendar days;

• options will continue to be exercisable for a period of seven months in the case of an employee whose employment is terminated other than for cause or who voluntarily terminates employment because of a good faith belief that such employee will not be able to discharge his or her duties;

• “limited stock appreciation rights” will be granted automatically on all outstanding options not otherwise covered by a SAR, which will generally be exercisable immediately in full, will entitle the holders to the same exercise period referred to in the bullets above and will be settled fully in cash based on a formula price generally reflecting the highest price paid for a share of our common stock during the 60-day period preceding the exercise date; and

• restrictions applicable to awards of restricted stock will be waived automatically.

Options or restricted shares which are granted, accelerated or enhanced upon the occurrence of a takeover may give rise, in whole or in part, to “excess parachute payments” within the meaning of Section 280G of the IRC and, to such extent, will be nondeductible by us and subject to a 20% excise tax to the awardee.

An “acceleration event” is generally defined in the 1997 Stock Plan as any of the following events:

• a report on Schedule 13D is filed with the SEC pursuant to Section 13(d) of the Exchange Act disclosing that any person (within the meaning of Section 13(d) of the Exchange Act), other than us, ITT Corporation (a Nevada corporation (“ITT Nevada”) that was formerly affiliated with ITT Corporation, an Indiana corporation), one of our subsidiaries or any employee benefit plan sponsored by us, ITT Nevada or one of our subsidiaries, is the beneficial owner directly or indirectly of 20% or more of the outstanding shares of our common stock;

• any person (within the meaning of Section 13(d) of the Exchange Act), other than us, ITT Nevada, one of our subsidiaries or any employee benefit plan sponsored by us, ITT Nevada or one of our subsidiaries, purchases shares pursuant to a tender offer or exchange offer to acquire any shares of our common stock (or securities convertible into our common stock) for cash, securities or any other consideration, provided that after consummation of the offer, the person in question is the beneficial owner (as such term is defined in Rule 13d-3 under the Exchange Act) directly or indirectly of 15% or more of the outstanding shares of our common stock (calculated as provided in paragraph (d) of Rule 13d-3 under the Exchange Act in the case of rights to acquire our common stock);

-110-

• our shareholders approve:

• any consolidation or merger of us in which we are not the continuing or surviving corporation or pursuant to which shares of our common stock would be converted into cash, securities or other property, other than a merger of us in which holders of our common stock immediately prior to the merger have the same proportionate ownership of common stock of the surviving corporation immediately after the merger as immediately before; or

• any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all or substantially all of our assets; or

• a change in a majority of the members of our Board of Directors within a 12-month period, unless the election or nomination for election by our shareholders of each new Director during such 12-month period was approved by the vote of two-thirds of the Directors then still in office who were Directors at the beginning of such 12-month period.

Amended 2006 Plan. On May 9, 2006, our shareholders approved the 2006 ITT Educational Services, Inc. Equity Compensation Plan (the “2006 Equity Compensation Plan”). On January 21, 2013, based on the recommendation of our Compensation Committee, our Board of Directors approved the Amended 2006 Plan and on May 7, 2013, our shareholders approved the Amended 2006 Plan.

Eligibility to Receive Awards. The approximate number of persons eligible to participate in the Amended 2006 Plan is 1,000.

Types of Awards. The Amended 2006 Plan permits the grant of the following types of awards:

• stock options (incentive and nonqualified);

• SARs;

• restricted stock;

• RSUs;

• performance shares;

• performance units; and

• other stock-based awards.

Duration of the Amended 2006 Plan. No award may be granted under the Amended 2006 Plan after May 7, 2023.

Administration. The Amended 2006 Plan is administered by a committee consisting of two or more members of our Board of Directors (the “Plan Committee”). It is intended that each member of the Plan Committee will be a “non-employee director” within the meaning of Rule 16b-3 of the Exchange Act, an “outside director” under regulations promulgated under Section 162(m) of the IRC, and an “independent director” under the NYSE listing standards. Our Board of Directors has currently designated the Compensation Committee as the Plan Committee for the Amended 2006 Plan; however, the entire Board will act as the Plan Committee with respect to awards to non-employee Directors. Subject to applicable law, the Plan Committee may delegate its authority under the Amended 2006 Plan.

Shares Subject to the Amended 2006 Plan. The total number of shares of our common stock available for awards under the Amended 2006 Plan is 7,350,000, subject to antidilution adjustments. Each share underlying stock options and SARs granted under the Amended 2006 Plan, and not forfeited or terminated, will reduce the number of shares available for future awards under the Amended 2006 Plan by one share. The delivery of a share in connection with a “full-value award” (i.e., an award of restricted stock, RSUs, performance shares, performance units or any other stock-based award with value denominated in shares) will reduce the number of shares remaining for other awards by two shares.

The source of shares for issuance under the Amended 2006 Plan may be authorized and unissued shares or treasury shares.

If an award under the Amended 2006 Plan is forfeited or terminated for any reason before being exercised, fully vested or settled, as the case may be, then the shares underlying that award will be added back to the remaining shares and will be available for future awards under the Amended 2006 Plan. The number of shares available for future awards under the Amended 2006 Plan, however, will be reduced by: (a) any shares subject to an award that are withheld or otherwise not issued upon the exercise of the award to satisfy the participant’s tax withholding obligations or to pay the exercise price of the award; and (b) shares subject to an award that is settled in cash in lieu of shares. In addition, any shares tendered by a participant in payment of the exercise price of an option may not be re-issued under the Amended 2006 Plan.

Pursuant to the Amended 2006 Plan, subject to antidilution adjustments:

• the maximum aggregate number of shares that may be delivered in connection with stock options intended to be incentive stock options under Section 422 of the IRC (“incentive stock options”) may not exceed 7,350,000 shares;

• the maximum aggregate number of shares that may be granted to an individual participant during any calendar year pursuant to:

• all forms of awards is 400,000 shares;

• incentive stock options is 400,000 shares;

• restricted stock and RSU awards is 250,000 shares; and

• performance share awards is 250,000 shares;

-111-

• the aggregate fair market value of shares that may be granted to a non-employee director during any calendar year may not exceed $400,000; and

• the maximum aggregate compensation that may be paid pursuant to performance units awarded in any one calendar year to an individual participant is $2,000,000, or a number of shares having an aggregate fair market value not in excess of that amount.

Further, no incentive stock option will be granted to a participant if, as a result of such grant, the aggregate fair market value of shares with respect to which incentive stock options are exercisable for the first time in any calendar year would exceed $100,000.

No Repricing. The Amended 2006 Plan prohibits repricing of stock options or SARs, including by way of an exchange for another award with a lower exercise price, unless shareholder approval is obtained.

Stock Options. Stock options granted under the Amended 2006 Plan may be either nonqualified or incentive stock options. Each option grant will be evidenced by an award agreement between the optionee and us setting forth the terms and conditions of the option. The Plan Committee will set the exercise price of each option, provided that the exercise price may not be less than 100% of the fair market value of our common stock on the date the option is granted. The Amended 2006 Plan defines “fair market value” as the closing price of our common stock on the effective date of the option grant or, if that date is not a trading day, on the most recent trading day prior to the effective date of the option grant. In addition, in the case of an incentive stock option granted to a participant who, at the time the option is granted, owns stock representing more than 10% of the voting power of all classes of our stock, the exercise price of the incentive stock option will not be less than 110% of the fair market value of our common stock on the effective date of the option grant.

The Plan Committee will determine the term of each stock option that it grants under the Amended 2006 Plan; however, the term may not exceed seven years from the date of grant. Moreover, in the case of an incentive stock option granted to a participant who, at the time the option is granted, owns stock representing more than 10% of the voting power of all classes of our stock, the term of the option may not exceed five years from the date of grant.

Unless otherwise provided with respect to an award by a participant’s award agreement or by written contract of employment of service, if an optionee’s employment or service terminates due to death or disability:

• all of the optionee’s stock options with time-based vesting provisions will become immediately exercisable and will remain exercisable until the earlier of:

• the date three years after the date of the optionee’s death or disability, or

• the date the options expire in accordance with their terms; and

• with respect to the optionee’s options with performance-based vesting provisions:

• the optionee will forfeit all such options that are not exercisable as of the date of death or disability; and

• options that were exercisable as of the date of death or disability will remain exercisable until the earlier of (a) the date three years after such date, or (b) the date the options expire in accordance with their terms.

For stock options granted under the 2006 Equity Compensation Plan prior to November 24, 2010, termination of an optionee’s employment or service due to retirement is treated in the same manner as termination of employment or service due to death or disability. In all cases, incentive stock options will not be exercisable for more than three months following an optionee’s death or retirement or more than one year following the termination of an optionee’s employment by reason of disability.

Unless otherwise provided with respect to an award by a participant’s award agreement or by written contract of employment of service, upon termination by us of an optionee’s employment or service without cause, or upon termination of employment or service by the optionee for a reason other than death or disability (or retirement for stock options granted prior to November 24, 2010):

• an optionee will forfeit all of his or her options that had not yet become exercisable; and

• options that were exercisable as of the date of the optionee’s termination will remain exercisable until the earlier of (a) the date 90 days after the date of termination, or (b) the date the options expire in accordance with their terms.

Unless otherwise provided with respect to an award by a participant’s award agreement or by written contract of employment of service, upon termination of employment or service for cause, an optionee will immediately forfeit all of his or her outstanding options.

SARs. SAR grants may be either freestanding or tandem with option grants. Each SAR grant will be evidenced by an agreement that will specify the number of shares to which the SAR pertains, the grant price, the term of the SAR and such other provisions as the Plan Committee shall determine. The grant price of a freestanding SAR will not be less than 100% of the fair market value of our common stock on the effective date of the SAR grant, and the grant price of a tandem SAR will equal the exercise price of the related option. The Plan Committee will determine the term of each SAR that it grants under the Amended 2006 Plan; however, the term may not exceed seven years from the date of grant.

Upon exercise of a SAR, the holder will receive payment from us in an amount equal to the product of (a) the excess of the fair market value of our common stock on the date of exercise over the grant price and (b) the number of shares with respect to which the SAR is exercised. At the discretion of the Plan Committee, payment to the holder of a SAR may be in cash, shares of our common stock or a combination thereof.

-112-

If the employment or service of a holder of a SAR is terminated, the SAR will be treated in the same manner as options are treated.

Restricted Stock and Restricted Stock Units. Each restricted stock or RSU grant will be evidenced by an agreement that specifies the applicable period of restriction, the number of restricted shares or RSUs granted, the vesting or settlement date, and such other provisions as the Plan Committee determines.

The period of restriction applicable to an award of restricted stock or RSUs is at least one year for awards with a time-based period of restriction granted after November 24, 2010 and all awards with a performance-based period of restriction, and was at least three years for awards with a time-based period of restriction granted under the 2006 Equity Compensation Plan prior to November 24, 2010.

Participants holding restricted stock may exercise full voting rights and will receive all regular cash dividends paid with respect to those shares. Except as otherwise determined by the Plan Committee, all other distributions paid with respect to the restricted stock will be credited to the participant subject to the same restrictions on transferability and forfeitability as the underlying restricted stock.

When the applicable period of restriction on the restricted stock ends, the stock will become freely transferable, and the participant will receive those shares. When the applicable period of restriction ends, RSUs will be settled and paid. At the time of the grant, the Plan Committee shall determine whether the RSUs will be settled by delivery of shares, payment in cash of an amount equal to the fair market value of the shares on the settlement date or the average of the fair market value of the shares over a specified number of days prior to the settlement date, or a combination of shares and cash.

With respect to restricted stock with a time-based period of restriction, unless otherwise provided with respect to an award by a participant’s award agreement or by written contract of employment of service:

• upon a participant’s death or disability, the period of restriction will lapse immediately; and

• upon termination of a participant’s employment or service with us for any reason other than death or disability, the participant will forfeit all unvested restricted stock immediately after the termination of employment or service.

Unless otherwise provided with respect to an award by a participant’s award agreement or by written contract of employment of service, with respect to restricted stock with a performance-based period of restriction, upon termination of a participant’s employment or service with us for any reason, the participant will forfeit all unvested restricted stock immediately after the termination of employment or service.

With respect to RSUs with a time-based period of restriction, unless otherwise provided with respect to an award by a participant’s award agreement or by written contract of employment of service:

• upon a participant’s death or disability, the period of restriction will lapse immediately, and the RSUs will be settled immediately thereafter; and

• upon termination of a participant’s employment or service with us for any reason other than death or disability, the participant will forfeit all of his or her unvested RSUs immediately after the termination of employment or service.

Unless otherwise provided with respect to an award by a participant’s award agreement or by written contract of employment of service, with respect to RSUs with a performance-based period of restriction, upon termination of a participant’s employment or service with us for any reason, the participant will forfeit all of his or her unvested RSUs immediately after the termination of employment or service.

Performance Shares and Performance Units. Each grant of performance shares and performance units will be evidenced by an agreement that specifies the number of shares or units granted, the applicable performance measures and performance periods, and such other provisions as the Plan Committee determines. Except as otherwise provided in the applicable award agreement, upon termination of employment or service or upon a change in control or subsidiary disposition, the performance period for performance shares and performance units must be at least one year.

A participant will not have voting rights or other rights as a shareholder with respect to the shares subject to an award of performance shares or performance units until the time, if at all, when shares are issued to the participant pursuant to the terms of the applicable award agreement.

As soon as practicable following the completion of the performance period applicable to outstanding performance shares or performance units, the Plan Committee will certify in writing the extent to which the applicable performance measures have been attained and the resulting final value of the award earned by the participant and to be paid upon its settlement. The Plan Committee, in its sole discretion as specified in the award agreement, may pay earned performance shares or performance units by delivery of shares or by payment in cash or a combination thereof.

Unless otherwise provided with respect to an award by a participant’s award agreement or by written contract of employment of service, if a participant terminates employment or service with us for any reason prior to the end of the performance period respecting an award of performance shares or performance units, the participant will forfeit any and all right to payment under the performance shares or performance units.

-113-

Other Stock-Based Awards. The Plan Committee has the right to grant other stock-based awards that may include, without limitation, grants of shares based on attainment of performance measures, payment of shares as a bonus or in lieu of cash based on attainment of performance measures, and the payment of shares in lieu of cash under other of our incentive or bonus programs.

The Plan Committee may determine to pay a non-employee Director’s regular annual retainer, retainer for Board committee memberships, retainer for chairperson duties, fees for attendance at Board or Board committee meetings, or any other retainers or fees in the form of another stock-based award under the Amended 2006 Plan. The Plan Committee may also determine to permit the non-employee Directors to elect whether to receive all or a portion of such retainers and fees in the form of other stock-based award. Any such other stock-based awards would not be subject to any restrictions (other than restrictions applicable to our “affiliates”).

Performance-Based Awards. The Plan Committee may grant awards that are intended to qualify as “performance-based compensation” for purposes of deductibility under Section 162(m) of the IRC. For any such award, the Plan Committee will establish the goals to be used within 90 days after the commencement of the performance period, or, if the number of days in the performance period is less than 90, the number of days equal to 25% of the performance period applicable to such award. The Amended 2006 Plan sets forth certain performance measures from which the Plan Committee may select for these awards. The Plan Committee may establish performance measures, in its discretion, on a corporate-wide basis or with respect to one or more business units, divisions, subsidiaries, business segments, functions, salary grade levels, or positions, and in either absolute terms or relative to the performance of one or more comparable companies or an index covering multiple companies. In addition, unless otherwise determined by the Plan Committee, measurement of performance measures will exclude the impact of charges for restructurings, discontinued operations, extraordinary items, and other unusual or non-recurring items, as well as the cumulative effects of tax or accounting changes, each as determined in accordance with generally accepted accounting principles or identified in our financial statements, notes to the financial statements, management’s discussion and analysis, or other filings with the SEC. As a result of the Incentive Compensation Prohibition and until there is further clarification of the scope and breadth of the Incentive Compensation Prohibition, the Plan Committee will not grant performance-based awards on or after July 1, 2011.

Change in Control, Cash-Out and Subsidiary Disposition. Except as otherwise provided in the applicable award agreement, if we experience a change in control:

• any and all outstanding stock options and SARs granted under the Amended 2006 Plan with time-based vesting provisions will become immediately exercisable;

• any restrictions imposed on restricted stock, RSUs and other stock-based awards granted under the Amended 2006 Plan with time-based vesting provisions will lapse; and

• any and all performance shares, performance units and other awards (if performance-based) granted under the Amended 2006 Plan will vest on a pro rata monthly basis, including full credit for partial months elapsed, and will be paid (a) based on the level of performance achieved as of the date of the change in control, if determinable, or (b) at the target level, if not determinable.

In addition, the Plan Committee may, in its sole discretion, determine that: (a) all outstanding stock options and SARs will be terminated upon the occurrence of a change in control and that each participant will receive, with respect to each share subject to the options or SARs, an amount in cash equal to the excess of the consideration payable with respect to one share in connection with the change in control over the option’s exercise price or the SAR’s grant price; and (b) options and SARs outstanding as of the date of the change in control may be cancelled and terminated without payment, if the consideration payable in connection with the change in control is less than the option’s exercise price or the SAR’s grant price.

Further, the Plan Committee has the authority to provide for the automatic full vesting and exercisability of one or more outstanding unvested awards under the Amended 2006 Plan and the termination of restrictions on transfer and repurchase or forfeiture rights on the awards, in connection with a disposition of a subsidiary of ours, but only with respect to those participants who are at the time engaged primarily in service with the subsidiary involved in the subsidiary disposition.

A change in control means the occurrence of one or more of the following:

• the acquisition by any person (within the meaning of Section 13(d) of the Exchange Act) or group (as used in Section 14(d)(2) of the Exchange Act), other than us, a subsidiary of ours or any employee benefit plan sponsored by us or a subsidiary of ours, of beneficial ownership (within the meaning of Section 13(d) of the Exchange Act) directly or indirectly of 25% or more of the outstanding shares of our common stock, provided that an increase in the percentage of the outstanding shares of our common stock beneficially owned by any person or group solely as a result of a reduction in the number of shares of our common stock then outstanding due to the repurchase by us of such common stock shall not constitute a change in control, however any subsequent acquisition of shares of our common stock by any person or group resulting in such person or group beneficially owning 25% or more of the outstanding shares of our common stock shall constitute a change in control;

• the consummation of any consolidation or merger of us or any sale, lease, exchange or other transfer of all or substantially all of our assets, unless, immediately following such consolidation, merger or sale,

• all or substantially all the persons (within the meaning of Section 13(d) of the Exchange Act) who were the beneficial owners of the securities eligible to vote for the election of our Board of Directors (“company voting

-114-

securities”) outstanding immediately prior to the consummation of such consolidation, merger or sale continue to beneficially own, directly or indirectly, more than 50% of the combined voting power of the then outstanding voting securities of the corporation or other entity resulting from such consolidation, merger or sale in substantially the same proportions as their ownership, immediately prior to the consummation of such consolidation, merger or sale, of the outstanding company voting securities, subject to certain exceptions, and

• no person (within the meaning of Section 13(d) of the Exchange Act) (excluding any employee benefit plan or related trust sponsored or maintained by the continuing company or any entity controlled by the continuing company) beneficially owns, directly or indirectly, 25% or more of the combined voting power of the then outstanding voting securities of the continuing company, and

• at least a majority of the members of the board of directors of the continuing company were incumbent directors of ours (as defined below) at the time of the execution of the definitive agreement providing for such consolidation, merger or sale or, in the absence of such an agreement, at the time at which approval of our Board of Directors was obtained for such transaction;

• during any period of 12 consecutive calendar months, individuals who were directors of ours on the first day of such period (“incumbent directors”) cease for any reason to constitute a majority of our Board of Directors; provided, that any individual becoming a director after the first day of such period whose election or nomination by our shareholders was approved by a vote of at least a majority of the incumbent directors shall be deemed to be an incumbent director (unless such individual’s initial assumption of office occurs as a result of an actual or threatened proxy contest with respect to election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of any person); or

• the liquidation or dissolution of us.

Notwithstanding any other provision of the Amended 2006 Plan, with respect to any provision or feature of the plan that constitutes or provides for a deferred compensation plan subject to IRC Section 409A, no event or transaction will constitute a change in control unless it is a change in control within the meaning of IRC Section 409A.

Adjustments of Awards Upon the Occurrence of Certain Unusual or Nonrecurring Events. The Plan Committee may make adjustments in the terms and conditions of, and the criteria included in, awards under the Amended 2006 Plan in recognition of unusual or nonrecurring events (including, without limitation, changes in capitalization) affecting us or our financial statements or of changes in applicable law, regulations, or accounting principles, whenever the Plan Committee determines that such adjustments are appropriate to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under the Amended 2006 Plan. With respect to any awards intended to comply with the performance-based exception under the Amended 2006 Plan, unless otherwise determined by the Plan Committee, any such exception will be specified at such times and in such manner as will not cause such awards to fail to qualify under the performance-based exception.

Recoupment of Awards. All awards granted under the Amended 2006 Plan will be subject to any company policy on recoupment of awards, as in effect from time to time, and all laws relating to the recoupment of equity-based awards.

Amendment, Suspension and Termination of the Amended 2006 Plan. The Board of Directors may amend, suspend or terminate the Amended 2006 Plan at any time; provided, however, that shareholder approval is required for any amendment to the extent necessary to comply with the NYSE listing standards or applicable laws. In addition, no amendment, suspension or termination may adversely impact an award previously granted without the consent of the participant to whom such award was granted unless required by applicable law.

See Exhibit 10.1 to our Current Report on Form 8-K, filed on May 7, 2013 with the SEC for a complete copy of the Amended 2006 Plan.

2013 Awards. During 2013, the following equity-based compensation awards were granted under the Amended 2006 Plan:

• nonqualified stock options to our key employees to purchase an aggregate of 156,500 shares of our common stock;

• an aggregate of 493,230 RSUs to our key employees, which RSUs settle in shares of our common stock; and

• an aggregate of 28,784 RSUs to our non-employee Directors, which RSUs settle in shares of our common stock.

ESI 401(k) Plan. On May 16, 1998, we established the ESI 401(k) Plan, a qualified defined contribution plan. The ESI 401(k) Plan is designed to provide substantially all of our employees with a tax-deferred, long-term savings vehicle. Prior to July 1, 2013, for each payroll period, we made matching cash contributions in an amount equal to (a) 100% of the first 1% of the employee’s salary that the employee contributed to the plan and (b) 50% of the next 4% of the employee’s salary that the employee contributed to the plan. Beginning on July 1, 2013, for each payroll period, we make matching cash contributions in an amount equal to 50% of the first 6% of the employee’s salary that the employee contributes to the plan. Our matching contributions vest 100% upon completion of the third full year that the employee is employed by us. Employees can elect to contribute from 1% to the maximum amount of their salaries that is permitted by federal law, and they have a choice of 22 investment funds in which to invest their contributions.

After age 59 ¹⁄₂, employees may withdraw most of their and our vested contributions, including rollover, matching, employee pre-tax and predecessor plan contributions, and the earnings thereon. Regardless of the employee’s age, our retirement contributions made before January 1, 2002 and the earnings thereon may not be withdrawn while the employee is still employed by us. Prior to age 59 ¹⁄₂, withdrawals by an employee are limited to rollover and predecessor plan contributions, unless the

-115-

employee qualifies for a financial hardship withdrawal or a withdrawal in connection with a leave to perform qualifying military service. Upon termination of employment, the employee may withdraw all amounts attributable to the employee’s contributions and our vested contributions. Payments are normally made in a single lump sum, but if the employee’s balance is above a threshold amount, the employee may elect to receive payment in annual or monthly installments over a period not to exceed 20 years.

Outstanding Equity Awards at Fiscal Year-End Table

The following table sets forth information concerning the outstanding equity awards granted by us to the Named Executive Officers that were outstanding on December 31, 2013.

Outstanding Equity Awards at Fiscal Year-End 2013

	Option Awards								Stock Awards
Named Executive Officer	Number of Securities Underlying Unexercised Options				Option Exercise Price		Option Expiration Date		Number of Shares or Units of Stock that have Not Vested(3)		Market Value of Shares or Units of Stock that have Not Vested(4)
	Exercisable(1)		Unexercisable(2)
(a)	(b)		(c)		(d)		(e)		(f)		(g)
Kevin M. Modany
01/19/04 Award (5)		27,000		0	$	51.20		01/21/14
01/31/07 Award (6)		41,289		0	$	77.60		01/31/14
04/02/07 Award (7)		69,282		0	$	82.20		04/02/14
01/30/08 Award (8)		74,147		0	$	88.38		01/30/15
01/28/09 Award (9)		100,000		0	$	121.56		01/28/16
01/27/10 Award (10)		125,000		0	$	113.41		01/27/17
01/27/11 Award (11)		83,333		41,667	$	69.43		01/27/18
02/13/12 Award - Option (12)		20,833		41,667	$	75.16		02/13/19
02/13/12 Award - RSUs (13)										14,531	$	487,951
02/13/12 Award - RSUs (14)										44,229	$	1,485,210
05/09/13 Award - Option (15)		0		62,500	$	19.31		05/09/20
05/09/13 Award - RSUs (16)										28,125	$	944,438
Daniel M. Fitzpatrick
01/31/07 Award (6)		21,750		0	$	77.60		01/31/14
01/30/08 Award (8)		15,508		0	$	88.38		01/30/15
01/28/09 Award (9)		20,000		0	$	121.56		01/28/16
01/27/10 Award (10)		22,000		0	$	113.41		01/27/17
01/27/11 Award - Option (11)		11,000		5,500	$	69.43		01/27/18
01/27/11 Award - RSUs (17)										794	$	26,663
02/13/12 Award - Option (12)		3,666		7,334	$	75.16		02/13/19
02/13/12 Award - RSUs (13)										2,558	$	85,898
02/13/12 Award - RSUs (14)										8,545	$	286,941
05/09/13 Award - Option (15)		0		15,000	$	19.31		05/09/20
05/09/13 Award - RSUs (16)										6,750	$	226,665
Eugene W. Feichtner
01/19/04 Award (5)		18,000		0	$	51.20		01/21/14
01/31/07 Award (6)		19,000		0	$	77.60		01/31/14
01/30/08 Award (8)		15,508		0	$	88.38		01/30/15
01/28/09 Award (9)		17,500		0	$	121.56		01/28/16
01/27/10 Award (10)		20,000		0	$	113.41		01/27/17
01/27/11 Award - Option (11)		6,666		3,334	$	69.43		01/27/18
01/27/11 Award - RSUs (17)										1,443	$	48,456
02/13/12 Award - Option (12)		3,333		6,667	$	75.16		02/13/19
02/13/12 Award - RSUs (13)										2,326	$	78,107
02/13/12 Award - RSUs (14)										7,780	$	261,252
05/09/13 Award - Option (15)		0		10,000	$	19.31		05/09/20
05/09/13 Award - RSUs (16)										4,500	$	151,110
June M. McCormack
05/19/08 Award (18)		15,000		0	$	70.03		05/19/15
01/28/09 Award (9)		17,500		0	$	121.56		01/28/16
01/27/10 Award (10)		20,000		0	$	113.41		01/27/17
01/27/11 Award (17)										2,885	$	96,878
02/13/12 Award - Option (12)		3,333		6,667	$	75.16		02/13/19
02/13/12 Award - RSUs (13)										2,326	$	78,107
02/13/12 Award - RSUs (14)										6,421	$	215,617
05/09/13 Award - Option (15)		0		10,000	$	19.31		05/09/20
05/09/13 Award - RSUs (16)										4,500	$	151,110
Glenn E. Tanner
01/19/04 Award (5)		9,000		0	$	51.20		01/21/14
01/31/07 Award (6)		10,640		0	$	77.60		01/31/14
01/30/08 Award (8)		9,305		0	$	88.38		01/30/15
01/28/09 Award (9)		17,500		0	$	121.56		01/28/16
01/27/10 Award (10)		20,000		0	$	113.41		01/27/17
01/27/11 Award (17)										2,885	$	96,878
02/13/12 Award - Option (12)		3,333		6,667	$	75.16		02/13/19
02/13/12 Award - RSUs (13)										2,326	$	78,107
02/13/12 Award - RSUs (14)										6,270	$	210,547
05/09/13 Award - Option (15)		0		10,000	$	19.31		05/09/20
05/09/13 Award - RSUs (16)										4,500	$	151,110

-116-

(1) Amounts shown represent on an award-by-award basis, the number of securities underlying unexercised options that were exercisable as of December 31, 2013.

(2) Amounts shown represent on an award-by-award basis, the number of securities underlying unexercised options that were unexercisable as of December 31, 2013. These options will become exercisable on their scheduled vesting dates as noted in the footnotes below, except that the options will become immediately exercisable upon the occurrence of an acceleration event or change in control, or upon termination of employment due to death, disability or, in the case of options granted prior to November 24, 2010, retirement.

(3) Amounts shown represent on an award-by-award basis, the total number of shares of our common stock that had not vested as of December 31, 2013. These awards will vest on their scheduled vesting dates as noted in the footnotes below, except that the RSUs will immediately vest upon the occurrence of a change in control or upon termination of employment due to death or disability.

(4) Amounts shown represent on an award-by-award basis, the aggregate market value of shares of our common stock that had not vested as of December 31, 2013. The aggregate market value is calculated by multiplying the number of shares or units by the closing market price of a share of our common stock on December 31, 2013.

(5) This stock option award vested in two installments: one-third on January 19, 2005; and two-thirds on October 24, 2005.

(6) This stock option award vested in three equal installments on January 31, 2008, 2009 and 2010.

-117-

(7) This stock option award vested in three equal installments on April 2, 2008, 2009 and 2010.

(8) This stock option award vested in three equal installments on January 30, 2009, 2010 and 2011.

(9) This stock option award vested in three equal installments on January 28, 2010, 2011 and 2012.

(10) This stock option award vested in three equal installments on January 27, 2011, 2012 and 2013.

(11) This stock option award vested in three equal installments on January 27, 2012, 2013 and 2014.

(12) This stock option award vests in three equal installments on February 13, 2013, 2014 and 2015.

(13) This RSU award vests in three equal installments on February 13, 2013, 2014 and 2015, and will be settled in shares of our common stock.

(14) This RSU award vests in full on February 13, 2015, and will be settled in shares of our common stock.

(15) This stock option award vests in three equal installments on May 9, 2014, 2015 and 2016.

(16) This RSU award vests in three equal installments on May 9, 2014, 2015 and 2016, and will be settled in shares of our common stock.

(17) This RSU award vested in three equal installments on January 27, 2012, 2013 and 2014, and was settled in shares of our common stock.

(18) This stock option award vested in three equal installments on May 19, 2009, 2010 and 2011.

Option Exercises and Stock Vested Table

The following table sets forth, on an aggregated basis, information concerning the exercise of stock options to purchase common stock by, and the vesting of RSUs held by, the Named Executive Officers during 2013.

Option Exercises and Stock Vested in Fiscal Year 2013

	Option Awards				Stock Awards
Named Executive Officer	Number of Shares Acquired on Exercise		Value Realized on Exercise		Number of Shares Acquired on Vesting (1)		Value Realized on Vesting (2)
Kevin M. Modany		0	$	0		7,265	$	132,586
Daniel M. Fitzpatrick		0	$	0		2,071	$	36,138
Eugene W. Feichtner		0	$	0		2,604	$	44,509
June M. McCormack		0	$	0		4,047	$	67,828
Glenn E. Tanner		0	$	0		4,047	$	67,828

(1) Amounts shown represent the number of shares of our common stock related to which RSUs vested during the fiscal year.

(2) Amounts shown represent the aggregate dollar amount realized by the Named Executive Officer upon vesting of the RSUs. The dollar amount realized upon vesting of RSUs in 2013 was determined by multiplying the number of RSUs vested by the market price of a share of our common stock on the vesting date. The dollar amounts realized upon vesting of all RSUs in 2013 held by the Named Executive Officer are then added together to obtain the aggregate dollar amount shown in this column.

Pension Benefits Table

The following table sets forth information concerning the Named Executive Officers’ pension benefits under each pension plan in which we participated.

-118-

Pension Benefits

Named Executive Officer	Plan Name (1)	Number of Years of Credited Service (2)			Present Value of Accumulated Benefit (3)		Payments During Last Fiscal Year (4)
Kevin M. Modany
	Old Pension Plan		0	(5)	$	0	$	0
	ESI Pension Plan		12	(6)	$	34,908	$	0
	ESI Excess Pension Plan		12	(6)	$	45,009	$	0
Daniel M. Fitzpatrick
	Old Pension Plan		0	(5)	$	0	$	0
	ESI Pension Plan		0	(5)	$	0	$	0
	ESI Excess Pension Plan		0	(5)	$	0	$	0
Eugene W. Feichtner
	Old Pension Plan		21.6	(7)	$	270,715	$	0
	ESI Pension Plan		35	(6)	$	279,797	$	0
	ESI Excess Pension Plan		35	(6)	$	75,218	$	0
June M. McCormack
	Old Pension Plan		0	(5)	$	0	$	0
	ESI Pension Plan		0	(5)	$	0	$	0
	ESI Excess Pension Plan		0	(5)	$	0	$	0
Glenn E. Tanner
	Old Pension Plan		21.5	(7)	$	167,059	$	23,495	(8)
	ESI Pension Plan		34	(6)	$	288,614	$	0
	ESI Excess Pension Plan		0	(5)	$	0	$	0

(1) Includes each plan that provides for specific retirement payments and benefits, or payments and benefits that will be provided primarily following retirement, including, without limitation, tax-qualified defined benefit plans and supplemental executive retirement plans, but excluding tax-qualified defined contribution plans and nonqualified defined contribution plans.

(2) Computed as of December 31, 2013.

(3) Amounts shown represent the actuarial present value of the Named Executive Officer’s accumulated benefit under the plan, computed as of December 31, 2013. The estimated amounts assume that the Named Executive Officer’s retirement age is the normal retirement age as defined in the plan or, if not so defined, the earliest time at which a participant may retire under the plan without any benefit reduction due to age. The estimated amounts are based on the Named Executive Officer’s most current compensation subject to the plan and, as such, future levels of the Named Executive Officer’s compensation are not estimated for purposes of the calculation. The estimated amounts used to quantify the present value of the accumulated benefit under the Old Pension Plan assume a normal retirement age of 65 using the RP-2000 mortality table and a 4.25% discount rate as of December 31, 2013 for each of the Named Executive Officers who participates in the plan. No mortality is assumed prior to age 65 for any of the Named Executive Officers in the estimated amounts shown for the Old Pension Plan. See Note 15 – Employee Benefit Plans of the Notes to Consolidated Financial Statements, for a discussion of the valuation method and all material assumptions applied in quantifying the present value of the accumulated benefit under the ESI Pension Plan and ESI Excess Pension Plan.

(4) Amounts shown represent the dollar amount of any payments and benefits paid to the Named Executive Officer under each plan identified during 2013.

(5) The Named Executive Officer’s employment with us, or his or her eligibility to participate in the plan, began after participation in the plan by new eligible employees had ended.

(6) The Named Executive Officer’s number of years of credited service with respect to the ESI Pension Plan and the ESI Excess Pension Plan is different from the Named Executive Officer’s number of actual years of service with us, because:

• any benefit service with ITT Corporation or any of its affiliated companies that was credited to the participating employee under the Old Pension Plan or the Retirement Plan for Salaried Employees of ITT Nevada (the “Nevada Pension Plan”), is treated as benefit service with us under the ESI Pension Plan and the ESI Excess Pension Plan;

• the ESI Pension Plan covers only most of our eligible salaried employees who were employed by us prior to June 2, 2003; and

• the ESI Excess Pension Plan covers only a select group of our management and highly-compensated employees who were employed by us prior to June 2, 2003.

The number of years of credited service attributed to each Named Executive Officer reflects the Named Executive Officer’s actual service with us or an affiliated company under the ESI Pension Plan and the ESI Excess Pension Plan through the date that the plans were frozen. The number of years of actual service with us or an affiliated company by each Named Executive Officer who participates in the ESI Pension Plan or the ESI Excess Pension Plan and the difference between that Named Executive Officer’s actual service and credited service under the ESI Pension Plan and the ESI Excess Pension Plan are as follows:

Named Executive Officer	Actual Years of Service With Us or an Affiliated Company (a)		Credit Years of Service Under the Plan (b)		Difference (b-a)
Kevin M. Modany		11.5		12		0.5
Eugene W. Feichtner		34.6		35		0.4
Glenn E. Tanner		34.5		34		(0.5	)

The number of actual years of service with us or an affiliated company under the ESI Pension Plan and the ESI Excess Pension Plan, rounded to the nearest whole year in accordance with each plan’s terms, is the same as the number of credited years of service under the ESI Pension Plan and the ESI Excess Pension Plan and, therefore, no benefit augmentation resulted under the ESI Pension Plan or the ESI Excess Pension Plan to any of the Named Executive Officers as a result of the difference in the number of years of actual service from the number of years of credited service. The benefit accruals under the ESI Pension Plan and the ESI Excess Pension Plan for all participants in the plans were frozen on March 31, 2006, such that no further benefits accrue under those plans after March 31, 2006. See “– Pension Plans – ESI Pension Plan” and “– ESI Excess Pension Plan.”

(7) The Named Executive Officer’s number of years of credited service under the Old Pension Plan is different from the Named Executive Officer’s number of actual years of service with us, because our participation in the Old Pension Plan ended on December 19, 1995. The number of years of credited service attributed to each Named Executive Officer reflects the Named Executive Officer’s actual service with a participating company under the Old Pension Plan through the end of our participation in the Old Pension Plan. See “– Pension Plans – Old Pension Plan.” The number of years of actual service with us or an affiliated company by each Named Executive Officer who participated in the Old Pension Plan and the difference between that Named Executive Officer’s actual service and credited service under the Old Pension Plan are as follows:

-119-

Named Executive Officer	Actual Years of Service With Us or an Affiliated Company (a)		Credit Years of Service Under the Plan (b)		Difference (b-a)
Eugene W. Feichtner		34.6		21.6		(13.0	)
Glenn E. Tanner		34.5		21.5		(13.0	)

The number of actual years of service with us or an affiliated company is greater than the number of credited years of service under the Old Pension Plan and, therefore, no benefit augmentation resulted under the Old Pension Plan to any of the Named Executive Officers as a result of the difference in the number of years of actual service from the number of years of credited service.

(8) Mr. Tanner previously qualified for, elected to receive and has begun receiving the early retirement annual benefit under the Old Pension Plan, which is paid in the form of a life annuity by ITT Corporation. Since we are no longer affiliated with ITT Corporation, Mr. Tanner’s continued employment with us does not prevent him from being retired under the terms of the Old Pension Plan.

Pension Plans

Old Pension Plan. Prior to December 19, 1995, we participated in the Old Pension Plan, a non-contributory defined benefit pension plan that covered substantially all of our eligible salaried employees, including our executive officers. We paid the entire cost of the Old Pension Plan with respect to our employees. Normal retirement age under the Old Pension Plan is 65.

The annual pension amounts to 2% of a participant’s average final compensation (as defined below) for each of the first 25 years of benefit service, plus 1.5% of a participant’s average final compensation for each of the next 15 years of benefit service prior to December 19, 1995, reduced by 1.25% of the participant’s primary Social Security benefit for each year of benefit service to a maximum of 40 years; provided that no more than 50% of the participant’s primary Social Security benefit is used for such reduction. A participant’s average final compensation (including salary plus approved bonus payments) is defined under the Old Pension Plan as the total of (a) a participant’s average annual base salary for the five calendar years of the last 120 consecutive calendar months of eligibility service affording the highest such average, plus (b) a participant’s average annual compensation not including base salary (such as approved bonus compensation and overtime) for the five calendar years of the participant’s last 120 consecutive calendar months of eligibility service affording the highest such average. The dollar value of base salary and approved bonus (which may include non-equity incentive plan compensation under Item 402(a) of Regulation S-K under the Exchange Act), whether cash and/or non-cash, are the components of the compensation that are used for purposes of determining “average final compensation” under the Old Pension Plan, but annual compensation in excess of $160,000 and compensation accrued after December 18, 1995 are not taken into account. The Old Pension Plan also provides for: (a) undiscounted early retirement pensions for participants who retire at or after age 60 and prior to normal retirement age following completion of 15 years of eligibility service; and (b) discounted early retirement pensions for participants who retire between ages 55 and 59 and whose age and years of eligibility service equate to at least 80. A participant is vested in benefits accrued under the Old Pension Plan upon completion of five years of eligibility service. A participant may receive a distribution in the form of a qualified joint and survivor annuity or a life annuity. The amount of the resulting monthly benefit under a joint and survivor annuity is typically less than a life annuity based solely on the participant’s life expectancy. No extra years of credited service under the Old Pension Plan have been granted to any of the Named Executive Officers. As of December 31, 2013, Messrs. Feichtner and Tanner were the only Named Executive Officer participants who qualified for early retirement under the Old Pension Plan based on age and years of service. Mr. Tanner has elected to receive and has begun receiving the early retirement annual benefit under the Old Pension Plan. See “– Pension Benefits Table.” ITT Corporation is responsible for all benefits accrued under the Old Pension Plan and for administering those benefits with respect to its own employees as well as our retirees.

ESI Pension Plan. On June 9, 1998, we established the ESI Pension Plan that, prior to June 2, 2003, covered most of our eligible salaried employees, including our executive officers. The purpose for establishing the ESI Pension Plan was to replace the Nevada Pension Plan. We participated in the Nevada Pension Plan, which covered substantially all of our eligible salaried employees, including our executive officers, from December 20, 1995 to June 9, 1998. The Nevada Pension Plan was terminated and liquidated in June 2000 and is no longer in existence. Effective June 2, 2003, the ESI Pension Plan was amended to cover only most of our eligible salaried employees, including our executive officers, who were employed by us prior to June 2, 2003. The benefit accruals under the ESI Pension Plan for all participants in the plan were frozen on March 31, 2006, such that no further benefits accrue under that plan after March 31, 2006, other than interest credits described below.

The ESI Pension Plan is a cash balance defined benefit plan, which provides a set benefit to participating employees at their retirement that is not affected by the amount of our contributions to the ESI Pension Plan trust or the investment gains or losses with respect to such contributions. The ESI Pension Plan credited a bookkeeping account associated with each participating employee with:

• an amount based on the employee’s compensation, age and years of benefit service (the “Pay Credit”) at the end of each plan year (i.e., January 1 through December 31, except for the first plan year of June 9, 1998 through December 31, 1998) through March 31, 2006 of the 2006 plan year;

-120-

• interest credits on the portion of the balance attributable to Pay Credits credited to the bookkeeping account for plan years prior to the 2002 plan year, calculated as of the end of each plan year at the fixed rate of 8% through December 31, 2010 and 5% beginning January 1, 2011, compounded annually; and

• interest credits on the portion of the balance attributable to Pay Credits credited to the bookkeeping account for the 2002 and subsequent plan years, calculated as of the end of each plan year at a variable rate ranging from 6% to 12% through December 31, 2010 and 4% to 12% beginning January 1, 2011, compounded annually.

The variable rate for a plan year is the average of the 30-year U.S. Treasury Bond (or a comparable instrument) rates on each of March 31, June 30 and September 30 of the immediately preceding plan year. At retirement, the participating employee will receive a benefit equal to the value of the bookkeeping account associated with such employee. We pay the entire cost of the ESI Pension Plan. The Pay Credit equals a percentage of the participating employee’s compensation (consisting of base salary, overtime pay and bonuses (which may include non-equity incentive plan compensation under Item 402(a) of Regulation S-K under the Exchange Act) whether cash and/or non-cash) for the plan year and is determined under the following schedule according to points based on the participating employee’s age and years of benefit service:

Standard Schedule Allocation Percentage
Points	Prior to 2002	Beginning in 2002
1-29	2.0	2.5
30-34	2.5	2.5
35-39	3.0	3.0
40-44	3.5	3.5
45-49	4.0	4.0
50-54	4.5	4.5
55-59	5.5	5.5
60-64	6.5	6.5
65-69	7.5	7.5
70-74	9.0	9.0
75-79	10.5	10.5
80+	12.0	12.0

Participating employees who met certain age and service requirements received Pay Credits under the following “Transition Schedule,” which is more generous:

Transition Schedule Allocation Percentage
Points	Prior to 2002	Beginning in 2002
1-29	2.0	8.0
30-34	2.5	8.0
35-39	3.0	8.0
40-44	3.5	8.0
45-49	4.0	8.0
50-54	4.5	8.0
55-59	5.5	8.0
60-64	7.0	8.0
65-69	8.5	8.5
70-74	10.5	10.5
75-79	13.0	13.0
80+	16.0	16.0

Mr. Modany received Pay Credits under the “Standard Schedule,” Messrs. Feichtner and Tanner received Pay Credits under the “Transition Schedule” and Mr. Fitzpatrick and Ms. McCormack were ineligible to participate in the ESI Pension Plan.

The participating employee’s points for a plan year equal the sum of the employee’s age and years of benefit service as of the last day of the plan year. Any benefit service and vesting service with ITT Corporation or any of its affiliated companies that were credited to the participating employee under the Old Pension Plan as of December 19, 1995 or under the Nevada Pension Plan from December 20, 1995 through June 9, 1998 are treated as benefit service and vesting service, respectively, with us under the ESI Pension Plan. A participating employee who has completed three or more years of vesting service (or his or her beneficiary) is eligible to receive a distribution from the ESI Pension Plan upon the participating employee’s retirement on or after age 55, disability, death or after the employee has both terminated employment and reached age 55. The form and timing of the distribution may vary depending on the reason the participant’s employment ends, the participant’s marital status, the present value of the bookkeeping account associated with the employee and the employee’s election. An employee may receive a distribution in the form of a lump sum, qualified joint and survivor annuity (for married participants) or life annuity (for unmarried participants). The amount of the resulting monthly benefit under a joint and survivor annuity is typically less than for a life annuity based solely on the participant’s life expectancy. We do not have a policy with regard to crediting extra years of benefit service under our pension plans, but no extra years of benefit service under the ESI Pension Plan have been credited to any

-121-

of the Named Executive Officers. As of December 31, 2013, Messrs. Feichtner and Tanner were the only Named Executive Officer participants who qualified for retirement under the ESI Pension Plan based on age and years of service. If Mr. Feichtner’s employment with us terminated as of December 31, 2013, he would receive his accrued benefit under the ESI Pension Plan as of that date, which was $279,797. If Mr. Tanner’s employment with us terminated as of December 31, 2013, he would receive his accrued benefit under the ESI Pension Plan as of that date, which was $288,614. An eligible employee’s benefits under the ESI Pension Plan will be paid from the trust maintained for the ESI Pension Plan that has been funded by us.

ESI Excess Pension Plan. On June 9, 1998, we established, and effective January 1, 2008, we restated, the ESI Excess Pension Plan, an unfunded, nonqualified retirement plan for a select group of our management and highly compensated employees. The benefit accruals under the ESI Excess Pension Plan for all participants in the plan were frozen on March 31, 2006, such that no further benefits accrue under that plan after March 31, 2006. The purpose of the ESI Excess Pension Plan was to restore benefits earned, but not available, to eligible employees under the ESI Pension Plan due to federal limitations on the amount of benefits that can be paid and compensation that may be recognized under a tax-qualified retirement plan. The practical effect of the ESI Excess Pension Plan was to continue the calculation of retirement benefits to all employees on a uniform basis. The eligible employee’s compensation upon which the benefits under the ESI Excess Pension Plan are based is the same as for that eligible employee’s benefits under the ESI Pension Plan (but without regard to the IRC limit on includible compensation for qualified plans).

An eligible employee will receive his or her benefit under the ESI Excess Pension Plan in a lump sum cash payment within 60 days following his or her termination of employment. If an eligible employee is a “specified employee” as defined in Section 409A of the IRC, however, then his or her benefit will be paid on the first day that is six months after the eligible employee’s termination of employment. If an eligible employee dies before the benefit due to the employee under the ESI Excess Pension Plan has been paid, then the benefit will be paid to the employee’s beneficiary within 60 days after the employee’s death. We do not have a policy with regard to crediting extra years of benefit service under our pension plans, but no extra years of benefit service under the ESI Excess Pension Plan have been credited to any of the Named Executive Officers. As of December 31, 2013, Mr. Feichtner was the only Named Executive Officer participant who qualified for retirement under the ESI Excess Pension Plan based on age and years of service. If Mr. Feichtner’s employment with us terminated as of December 31, 2013, he would receive his accrued benefit under the ESI Excess Pension Plan as of that date, which was $75,218. An eligible employee’s benefits under the ESI Excess Pension Plan will generally be paid directly by us. See “– ESI Pension Plan.”

Nonqualified Deferred Compensation Plan Table

The following table sets forth information concerning the compensation of the Named Executive Officers in our 2013 fiscal year under the ESI Excess Savings Plan. None of the Named Executive Officers has deferred any bonus compensation under the Deferred Bonus Plan.

Nonqualified Deferred Compensation in Fiscal Year 2013

Named Executive Officer	Executive Contributions in Last Fiscal Year (1)		ITT/ESI Contributions in Last Fiscal Year (1)		Aggregate Earnings in Last Fiscal Year(2)		Aggregate Balance at Last Fiscal Year-End (3)
Kevin M. Modany
ESI Excess Savings Plan	$	0	$	0	$	4,195	$	54,736
Daniel M. Fitzpatrick
ESI Excess Savings Plan	$	0	$	0	$	0	$	0
Eugene W. Feichtner
ESI Excess Savings Plan	$	0	$	0	$	297	$	3,871
June M. McCormack
ESI Excess Savings Plan	$	0	$	0	$	0	$	0
Glenn E. Tanner
ESI Excess Savings Plan	$	0	$	0	$	1,023	$	13,346

(1) Effective for plan years beginning on and after January 1, 2008, we froze the ESI Excess Savings Plan, such that eligible employees may no longer make elective contributions and we no longer make contributions under the ESI Excess Savings Plan.

(2) Amounts shown represent the dollar amount of the aggregate interest or other earnings accrued during 2013 to the Named Executive Officer’s account under the ESI Excess Savings Plan. The only portion of these amounts that is reported as compensation to the Named Executive Officer in the Summary Compensation Table for the 2013 year is the above-market or preferential earnings in 2013 on the balance of the Named Executive Officer’s account under the ESI Excess Savings Plan which are included in the Change in Pension Value and Nonqualified Deferred Compensation Earnings column of the Summary Compensation Table. See “– Summary Compensation Table.”

(3) Amounts shown represent the dollar amount of the total balance of the Named Executive Officer’s account at the end of 2013 under the ESI Excess Savings Plan. The only portion of these amounts that is reported as compensation to the Named Executive Officer in the Summary Compensation Table for each of the 2012 and 2011 years is the above-market or preferential portion of aggregate earnings under the ESI Excess Savings Plan in 2012 and 2011, which contribute to the aggregate balance

-122-

of the Named Executive Officer’s ESI Excess Savings Plan account at year-end 2013. Those earnings are included in the amount of the Named Executive Officer’s compensation for the particular year and are reported in the Change in Pension Value and Nonqualified Deferred Compensation Earnings column of the Summary Compensation Table for that particular year. The amount of those above-market or preferential earnings for each of the Named Executive Officers is specified in the table below.

	ESI Excess Savings Plan Above-Market Earnings in Fiscal Year
Named Executive Officer	2012		2011
Kevin M. Modany	$	2,571	$	1,725
Daniel M. Fitzpatrick	$	0	$	0
Eugene W. Feichtner	$	183	$	124
June M. McCormack	$	0	$	0
Glenn E. Tanner	$	625	$	417

Nonqualified Deferred Compensation Plans

ESI Excess Savings Plan. On June 9, 1998, we established, and effective January 1, 2008, we restated, the ESI Excess Savings Plan, an unfunded, nonqualified deferred compensation plan for a select group of our management and highly compensated employees. Effective for plan years beginning on and after January 1, 2008, we froze the ESI Excess Savings Plan, such that eligible employees may no longer make elective deferrals and we will no longer make contributions under the ESI Excess Savings Plan. The ESI Excess Savings Plan offered eligible employees, who were precluded by federal limitations from fully participating in the ESI 401(k) Plan, a means for:

• restoring their contributions lost under the ESI 401(k) Plan due to the federal limitations;

• restoring our matching and non-matching contributions lost under the ESI 401(k) Plan due to the federal limitations; and

• deferring a portion of their salaries equal to either 5% or the same deferral percentage that they elected under the ESI 401(k) Plan.

Any deferral of an eligible employee’s salary under the ESI Excess Savings Plan applied only with respect to the salary that exceeded the federal limitations. See “– Equity Compensation and Qualified Savings Plans – ESI 401(k) Plan.”

Prior to the freeze of the ESI Excess Savings Plan, we made matching contributions under the ESI Excess Savings Plan equal to 100% of the first 1% and 50% of the next 4% of the eligible employee’s salary that the employee deferred under the ESI Excess Savings Plan. Any amounts credited to an eligible employee under the ESI Excess Savings Plan will accrue interest at the rate of 8% compounded monthly. This rate is determined by the Compensation Committee and may be changed at any time by that Committee. Our matching contributions vest 100% upon completion of the third full year that the employee is employed by us. The payment of the eligible employee’s salary deferrals, our vested matching contributions and the attributable interest accrued thereon will be made in a single lump sum cash payment within 60 days following a Change in Control (as defined in the ESI Excess Savings Plan and below) or the eligible employee’s termination of employment. If an eligible employee is a “specified employee” as defined in Section 409A of the IRC, however, then his or her amounts will be paid on the first day that is six months after his or her termination of employment. If an eligible employee dies before the amounts due to the employee under the ESI Excess Savings Plan have been paid, then those amounts will be paid to the employee’s beneficiary within 60 days after the employee’s death.

A Change in Control under the ESI Excess Savings Plan means one of the following events:

• the acquisition of ownership (other than by way of merger or consolidation with an entity that, immediately before the acquisition, was a Controlling Company (as defined in the ESI Excess Savings Plan and below)) during any 12 month period, by any one person or more than one person acting as a group, of all or substantially all of the assets of a Controlling Company;

• the acquisition (other than by a Controlling Company) by any one person or more than one person acting as a group, of ownership of more than 50% of the total fair market value or total voting power of the ownership interests of stock of a Controlling Company;

• the acquisition (other than by a Controlling Company) during any 12 month period, by any one person or more than one person acting as a group, of ownership of stock of a Controlling Company possessing 30% or more of the total voting power of stock of the Controlling Company; or

• the replacement of a majority of members of the board of directors or comparable governing body of a Controlling Company, during any 12-month period, by members whose appointment or election is not endorsed by a majority of the members of the Controlling Company’s board of directors or comparable governing body prior to the date of the appointment or election.

A “Controlling Company” means:

• us;

• a related company that participates in the ESI Excess Savings Plan and employs the eligible employee;

-123-

• a related company that is the majority owner of us or a participating company that employs the eligible employee; or

• any related company in an uninterrupted chain of majority ownership culminating in the ownership of us or a participating company that employs the eligible employee.

Deferred Bonus Plan. On March 15, 2000, we established, and effective January 1, 2008, we restated, the Deferred Bonus Plan, an unfunded, nonqualified deferred compensation plan for a select group of our management and highly compensated employees. The Deferred Bonus Plan provides that each eligible employee may elect to defer payment of all or a portion of his or her annual bonus compensation in the same form that the bonus is otherwise payable, either in cash or shares of our common stock. The deferral of payment of cash or shares of our common stock can only be made in increments of 25%. Any deferred cash amounts will accrue interest at the rate of 6% compounded annually. This rate is determined by the Compensation Committee and may be changed at any time by that Committee. Any deferred shares of our common stock will be credited with any cash dividends on those shares and, on a semi-annual basis, those cash dividends will be converted to shares of our common stock, based on the fair market value at the time of the conversion.

An eligible employee under the Deferred Bonus Plan may elect, as part of his or her deferral election, to receive payment of the deferred portion of his or her annual bonus compensation (a) within 60 days after termination of his or her employment with us or (b) in January of a designated calendar year that is no earlier than the second calendar year after the year in which the deferred bonus compensation was determined. If an eligible employee is a “specified employee” as defined in Section 409A of the IRC, then any amounts payable to the eligible employee under the Deferred Bonus Plan on account of his or her termination of employment with us will be paid on the first day that is six months after termination of his or her employment. If an eligible employee dies before all amounts due to the employee under the Deferred Bonus Plan have been paid, the unpaid balance will be paid in a lump sum within 60 days following the eligible employee’s death, regardless of the employee’s election. Payment of cash amounts deferred are made in the form of cash, and payment of shares of our common stock deferred are made in the form of shares of our common stock, except that any cash dividends that have not been converted to shares of our common stock will be paid in cash.

None of the Named Executive Officers deferred any amounts under the Deferred Bonus Plan in 2013.

Potential Payments Upon Termination or Change In Control

The amounts set forth or referenced in this section reflect amounts payable and the value of benefits under our plans and arrangements to each of the Named Executive Officers in the event of termination of such executive’s employment and/or a change in control of us under various circumstances. The various types of circumstances that would trigger payments and benefits are specified in the discussion of each plan and arrangement under which benefits would be received. The following discussion is of plans and arrangements currently in effect, but it is always possible that different arrangements could be negotiated in connection with an actual termination of employment or change in control. Further, the amounts shown are estimates and are based on numerous assumptions, including that employment terminated or a change in control occurred on December 31, 2013, except as otherwise noted. Therefore, the actual amounts of the payments and benefits that would be received by the Named Executive Officers could be more or less than the amounts set forth below, and can only be determined at the time of an actual termination of employment or change in control event.

Senior Executive Severance Plan. On October 22, 2007, we established the Senior Executive Severance Plan, which provides severance benefits for a select group of our executives (including all of the Named Executive Officers) when:

• the covered executive’s employment is terminated, other than for cause, or when the covered executive terminates his or her employment for good reason, in each case within two years after the occurrence of an acceleration event, as described below; or

• the covered executive’s employment is terminated, other than for cause, during an imminent acceleration event period, as described below.

As a result, the benefits under the Senior Executive Severance Plan are not payable merely because a change in control transaction occurs or is imminent. Instead, payment of the severance benefits is only triggered if a change in control has occurred or is imminent and certain types of termination of employment occur. The Compensation Committee has determined that this “double trigger” requirement is in the best interests of our company and our shareholders.

The Senior Executive Severance Plan provides two levels of benefits for covered executives, based on the covered executive’s position with us. Under the Senior Executive Severance Plan, Mr. Modany would receive the higher level of benefits and Messrs. Feichtner, Fitzpatrick and Tanner and Ms. McCormack would receive the lower level of benefits. If Mr. Modany’s employment is terminated other than for cause during an imminent acceleration event period or within two years after an acceleration event, or if he resigns for good reason within two years after an acceleration event, he would be entitled to the following from us:

• three times his highest annual base salary rate paid and his highest bonus paid or awarded any time during the three years immediately preceding the acceleration event (or in the case of a termination that occurs during an imminent acceleration event period, the three-year period immediately preceding the first day of the imminent acceleration event period);

-124-

• a lump sum amount equal to three times the product of his highest annual base salary rate paid during the three years immediately preceding the acceleration event (or in the case of a termination that occurs during an imminent acceleration event period, the three-year period immediately preceding the first day of the imminent acceleration event period), multiplied by the highest percentage rate of our contributions with respect to him under the ESI 401(k) Plan at any time during that three year period;

• a lump sum stipend equal to 36 times the monthly premium that, as of the date of Mr. Modany’s termination of employment, is charged to qualified beneficiaries for health care continuation coverage under COBRA, for the same coverage options and levels of medical, prescription drug, dental and vision coverage that he had in effect under our welfare plans immediately prior to his termination of employment;

• a lump sum stipend equal to 36 times the full monthly premium payable to our life insurance carrier for the type and level of life insurance coverage (including, if applicable, dependent life insurance coverage) in effect for him immediately prior to his termination of employment; and

• a tax gross-up payment that covers any excise tax, interest and penalties under the IRC arising from the payment to him of any amount under the Senior Executive Severance Plan or otherwise as a result of an acceleration event.

If any of the other Named Executive Officers’ employment is terminated other than for cause during an imminent acceleration event period or within two years after an acceleration event, or if he or she resigns for good reason within two years after an acceleration event, he or she would be entitled to the following from us under the Senior Executive Severance Plan:

• two times his or her highest annual base salary rate paid and his or her highest bonus paid or awarded any time during the three years immediately preceding the acceleration event (or in the case of a termination that occurs during an imminent acceleration event period, the three-year period immediately preceding the first day of the imminent acceleration event period);

• a lump sum amount equal to two times the product of his or her highest annual base salary rate paid during the three years immediately preceding the acceleration event (or in the case of a termination that occurs during an imminent acceleration event period, the three-year period immediately preceding the first day of the imminent acceleration event period), multiplied by the highest percentage rate of our contributions with respect to that executive under the ESI 401(k) Plan at any time during that three year period;

• a lump sum stipend equal to 24 times the monthly premium that, as of the date of the executive’s termination of employment, is charged to qualified beneficiaries for COBRA continuation coverage for the same coverage options and levels of medical, prescription drug, dental and vision coverage that the executive had in effect under our welfare plans immediately prior to his or her termination of employment; and

• a lump sum stipend equal to 24 times the full monthly premium payable to our life insurance carrier for the type and level of life insurance coverage (including, if applicable, dependent life insurance coverage) in effect for him or her immediately prior to his or her termination of employment;

provided, however, that in the event that any payments to one of these other Named Executive Officers under the Senior Executive Severance Plan or otherwise in connection with an acceleration event would be subject to any excise tax under Section 4999 of the IRC, then those payments will be reduced to the extent necessary to prevent any portion of the payments from being subject to an excise tax under that section of the IRC, but only if such reduction would allow the executive to retain a greater net after-tax benefit than he or she would have received if the payments had not been reduced and the executive had paid all applicable income, employment and excise taxes.

The Senior Executive Severance Plan provides that, in order to receive any severance benefits under that plan, the covered executive must agree to comply with certain restrictive covenants, including that the covered executive:

• will not be employed by, work for, consult with, lend assistance to or engage in businesses competitive with ours for a period of one year after termination of employment;

• will not solicit or induce to leave any of our employees for a period of one year after the executive’s termination of employment;

• will not urge or induce any of our customers or others with whom we have a business relationship to terminate or limit their business with us for a period of one year after termination of employment;

• will not disparage us for a period of one year after termination of employment; and

• will not disclose or use our confidential information for as long a period of time as permitted by applicable law, and in any event for a period of at least three years after termination of employment.

The covered executive must also execute a general release releasing us and certain related entities and individuals from all claims that he or she has or may have against us or them that arise on or before the date the executive signs the release.

The Senior Executive Severance Plan provides that the severance amounts will be paid by us in a lump sum cash payment within 30 calendar days following the covered executive’s termination or, if later, on the first business day after expiration of the revocation period of the general release. Payment of any gross-up amount to Mr. Modany is to be made within five business days after a chosen accounting firm determines whether such a payment is due. In all cases, any amounts due under the Senior Executive Severance Plan must be paid no later than March 15 of the calendar year following the calendar year in which the executive’s termination of employment occurs.

-125-

An “acceleration event” under the Senior Executive Severance Plan will occur if:

• a report on Schedule 13D is filed with the SEC disclosing that any person, other than us or one of our subsidiaries or any employee benefit plan that we or one of our subsidiaries sponsors, is the beneficial owner of 20% or more of the outstanding shares of our common stock, other than as a result of an increase in the percentage of the outstanding shares beneficially owned by such person solely as a result of a reduction in the number of shares then outstanding due to the repurchase by us of our common stock, provided that any subsequent acquisition of shares of our common stock by any person resulting in such person beneficially owning 20% or more of the outstanding shares of our common stock shall constitute an acceleration event;

• a person, other than us or one of our subsidiaries or any employee benefit plan that we or one of our subsidiaries sponsors, purchases shares of our common stock in connection with a tender or exchange offer, if after consummation of the offer the person purchasing the shares is the beneficial owner of 15% or more of the outstanding shares of our common stock;

• our shareholders approve:

• any consolidation or merger of us in which we are not the continuing or surviving corporation or our common stock is converted into cash, securities or other property, unless the transaction was a merger in which our shareholders immediately prior to the merger would have the same proportionate ownership of common stock of the surviving corporation that they held in us immediately prior to the merger; or

• any sale, lease, exchange or other transfer of all or substantially all of our assets; or

• a majority of the members of our Board of Directors changes within a 12-month period, unless the election or nomination for election of each of the new Directors by our shareholders had been approved by two-thirds of the Directors still in office who had been Directors at the beginning of the 12-month period.

An “imminent acceleration event period” under the Senior Executive Severance Plan means the period:

• beginning on the first to occur of:

• a public announcement of a proposal or offer that, if consummated, would be an acceleration event;

• a making to one or more of our Directors or executive officers of a written proposal that, if consummated, would be an acceleration event; or

• approval by our Board of Directors or shareholders of a transaction that, upon closing, would be an acceleration event; and

• ending upon the first to occur of:

• a public announcement that the contemplated acceleration event has been terminated or abandoned;

• the occurrence of the contemplated acceleration event; or

• 18 months after the beginning of the imminent acceleration event period.

A resignation for “good reason” means:

• a material diminution in the covered executive’s base compensation;

• a material diminution in the covered executive’s authority, duties or responsibilities;

• a material diminution in the authority, duties or responsibilities of the person to whom the covered executive is required to report (including, for example, a requirement that a covered executive who previously reported to the Board of Directors instead report to a corporate officer or employee);

• a material diminution in the budget over which the covered executive retains authority;

• a material change in the geographic location at which the covered executive must perform services; and

• if the terms and conditions of a covered executive’s employment are governed by an agreement, any other action or inaction that constitutes a material breach by us or any successor of the agreement.

A termination for “cause” means any action by a covered executive involving willful malfeasance or his or her failure to act involving material nonfeasance that would have a materially adverse effect on us. No act or omission on the part of the covered executive will be considered “willful,” unless it is done or omitted in bad faith or without reasonable belief that the action or omission was in our interests.

-126-

If termination of employment and an acceleration event or imminent acceleration event under the Senior Executive Severance Plan occurred that entitled the Named Executive Officers to severance benefits under the Senior Executive Severance Plan, the value that could have been realized from those benefits as if employment terminated on December 31, 2013 is as follows:

Value of Benefit that Could have been Realized by the Named Executive Officers

under the Senior Executive Severance Plan as of December 31, 2013

Type of Benefit	Modany		Fitzpatrick			Feichtner			McCormack			Tanner
Salary	$	2,400,222	$	800,000		$	620,216		$	553,582		$	518,214
Bonus	$	3,000,279	$	650,000		$	465,162		$	415,186		$	388,660
Stipend in Lieu of Health Insurance Benefits(1)	$	40,788	$	27,192		$	27,192		$	9,359		$	27,192
Stipend in Lieu of Life Insurance Benefits(1)	$	18	$	12		$	12		$	12		$	12
Foregone Savings Plan Benefits(1)	$	22,950	$	15,300		$	15,300		$	15,300		$	15,300
Tax Gross-Up Payment to Cover Excise Tax(2)	$	0		N/A			N/A			N/A			N/A
Reduction to Limit Excise Taxes(2)		N/A	$	(0	)	$	(0	)	$	(0	)	$	(0	)
Total	$	5,464,257	$	1,492,504		$	1,127,882		$	993,439		$	949,378

(1) The estimated value of the severance benefit is based on the cost to us using the assumptions used for financial reporting purposes under generally accepted accounting principles in the United States.

(2) The estimated value of any excise tax, and thereby the amount of any tax gross-up payment and the calculation of any reduction to limit excise taxes, are based on the highest marginal rate of federal, state and local taxes related to the severance benefits specified in the table and any other payments to the Named Executive Officer arising from an acceleration event. These amounts are also based on an assumption that, as a result of the covenant not to compete in the Senior Executive Severance Plan, the value of one year’s base salary and target bonus would constitute “reasonable compensation” under Section 280G of the IRC and therefore would be excluded from the calculation of the amount of any excise tax, the amount of any tax gross-up payment and the reduction, if any, required to limit excise taxes.

Letter Agreement. We entered into a letter agreement with Mr. Modany on August 4, 2014. See “—Employment Contracts” for a further discussion of the letter agreement. If we terminate the Applicable Period before February 4, 2015, Mr. Monday will be entitled to the cash compensation he would have been paid through that date. During the 18-month period following the Applicable Period, Mr. Modany will serve as a consultant to us in exchange for a monthly fee equivalent to his current monthly base salary and continued vesting of his equity-based awards. Mr. Modany will not be entitled to receive any severance pay or other separation benefits in connection with his resignation, but we will pay him a lump sum cash payment equal to 18 times his monthly premium with respect to COBRA for continued health and dental coverage. This payment will be made following Mr. Modany’s execution of a release of claims against us, and the amount of such payment will be approximately $21,750.

1997 Stock Plan. If a Named Executive Officer’s employment with us terminates as a result of the Named Executive Officer’s death, retirement or total disability, or if an acceleration event occurs under the 1997 Stock Plan, all stock options granted to the Named Executive Officer under the 1997 Stock Plan would immediately vest and become exercisable. See “– Equity Compensation and Qualified Savings Plans – 1997 Stock Plan.” If such an event occurred, none of the Named Executive Officers would have realized any value from the exercise of unvested stock options granted under the 1997 Stock Plan, because all of the outstanding stock options granted to the Named Executive Officers under the 1997 Stock Plan were fully vested as of December 31, 2013.

Amended 2006 Plan. If a Named Executive Officer’s employment with us terminates as a result of the Named Executive Officer’s death or disability:

• all outstanding stock options with time-based vesting restrictions granted to the Named Executive Officer under the Amended 2006 Plan will become exercisable immediately;

• all restrictions imposed on restricted stock and RSUs with time-based vesting restrictions granted to the Named Executive Officer under the Amended 2006 Plan will lapse immediately, and the RSUs will be settled immediately thereafter; and

• the Plan Committee will determine the extent to which a Named Executive Officer will have the right to receive other stock awards granted to the Named Executive Officer under the Amended 2006 Plan.

In addition, upon a Named Executive Officer’s retirement, all outstanding stock options with time-based vesting restrictions granted to the Named Executive Officer prior to November 24, 2010 under the Amended 2006 Plan will become exercisable immediately.

In the event of a change in control of us under the Amended 2006 Plan:

• all outstanding stock options with time-based vesting restrictions granted to the Named Executive Officer under the Amended 2006 Plan will become exercisable immediately;

• all restrictions imposed on restricted stock and RSUs with time-based vesting restrictions granted to the Named Executive Officer under the Amended 2006 Plan will lapse immediately, and the RSUs will be settled immediately thereafter; and

• in the discretion of the Plan Committee, all outstanding stock options may be terminated and each participant may receive, with respect to each share subject to the options, an amount in cash equal to the excess of the consideration payable with respect to one share in connection with the change in control over the option’s exercise price.

A change in control under the Amended 2006 Plan means the occurrence of one or more of the following:

• the acquisition by any person (within the meaning of Section 13(d) of the Exchange Act), other than us, a subsidiary of ours or any employee benefit plan sponsored by us or a subsidiary of ours, of a beneficial ownership directly or indirectly of 20% or more of the outstanding shares of our common stock, provided that an increase in the percentage of the outstanding shares of our common stock beneficially owned by any person (within the

-127-

meaning of Section 13(d) of the Exchange Act) solely as a result of a reduction in the number of shares of our common stock then outstanding due to the repurchase by us of such common stock shall not constitute a change in control, however any subsequent acquisition of shares of our common stock by any person (within the meaning of Section 13(d) of the Exchange Act) resulting in such person beneficially owning 20% or more of the outstanding shares of our common stock shall constitute a change in control;

• the purchase by any person (within the meaning of Section 13(d) of the Exchange Act), other than us, a subsidiary of ours or any employee benefit plan sponsored by us or a subsidiary of ours, of shares pursuant to a tender offer or exchange offer to acquire our common stock (or securities convertible into common stock) for cash, securities or any other consideration, provided that after consummation of the offer, the person in question is the beneficial owner (as such term is defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of 15% or more of the outstanding shares of our common stock (calculated as provided in paragraph (d) of Rule 13d-3 under the Exchange Act in the case of rights to acquire common stock);

• our shareholders approve (a) any consolidation or merger of us in which we are not the continuing or surviving corporation or pursuant to which shares of our common stock would be converted into cash, securities or other property, other than a merger of us in which holders of our common stock immediately prior to the merger have the same proportionate ownership of common stock of the surviving corporation immediately after the merger as immediately before, or (b) any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all or substantially all of our assets;

• a change in a majority of the members of our Board of Directors within a 12-month period, unless the election or nomination for election by our shareholders of each new Director during such 12-month period was approved by the vote of two-thirds of the Directors then still in office who were Directors at the beginning of such 12-month period; or

• the liquidation or dissolution of us.

In addition, one or more outstanding unvested awards under the Amended 2006 Plan may become fully vested and exercisable and the restrictions on the transfer and repurchase or forfeiture rights on the awards may be terminated in connection with a disposition of a subsidiary of ours, but only with respect to those participants who are at the time engaged primarily in service with the subsidiary involved in the subsidiary disposition. See “– Equity Compensation and Qualified Savings Plans – Amended 2006 Plan.”

If any of the following occurs:

• a Named Executive Officer’s employment with us terminates as a result of the Named Executive Officer’s death or disability;

• there is a change in control of us; or

• the Plan Committee determines to fully vest awards in a disposition of a subsidiary with which the officer was engaged primarily in service,

the value that could have been realized from the exercise or acceleration of unvested awards with time-based vesting restrictions granted to the Named Executive Officer under the Amended 2006 Plan as of December 31, 2013, is as follows:

	December 31, 2013 Value of Unvested Awards
	Termination Due to Death or Disability				Change in Control
Named Executive Officer	Stock Options(1)		RSUs(2)		Stock Options(1)		RSUs(2)
Kevin M. Modany	$	891,875	$	2,917,599	$	891,875	$	2,917,599
Daniel M. Fitzpatrick	$	214,050	$	626,167	$	214,050	$	626,167
Eugene W. Feichtner	$	142,700	$	538,925	$	142,700	$	538,925
June M. McCormack	$	142,700	$	541,712	$	142,700	$	541,712
Glenn E. Tanner	$	142,700	$	536,642	$	142,700	$	536,642

(1) Amounts shown represent the aggregate dollar amount that could be realized from all outstanding, unvested stock option awards granted to the Named Executive Officer under the Amended 2006 Plan, if those options became vested and were exercised by the Named Executive Officer on December 31, 2013.

(2) Amounts shown are calculated by multiplying the number of unvested RSUs held by the Named Executive Officer that would vest upon the specified event by the closing market price of a share of our common stock on December 31, 2013.

In addition, the Plan Committee, in its discretion, may amend the terms of any outstanding award granted under the Amended 2006 Plan in the event of a participant’s termination of employment or service or in the event of a change in control of us, subject to certain limitations. See “– Equity Compensation and Qualified Savings Plans – Amended 2006 Plan.”

ESI 401(k) Plan. If a Named Executive Officer’s employment with us terminates, the Named Executive Officer may withdraw from his or her account under the ESI 401(k) Plan all of the Named Executive Officer’s contributions, all of our vested contributions and all earnings on both types of contributions. Payments are normally made in a single lump sum, but if the Named Executive Officer’s balance is above a threshold amount, he or she may elect to receive payments in annual or monthly installments. See “– Equity Compensation and Qualified Savings Plans – ESI 401(k) Plan.”

-128-

If a Named Executive Officer’s employment with us terminated, the amount that could have been realized from the distribution of the contributions and earnings thereon in the Named Executive Officer’s account under the ESI 401(k) Plan as of December 31, 2013 is as follows:

Named Executive Officer	Amount of Employee Contributions, ITT/ESI Vested Contributions and Earnings on Those Contributions as of December 31, 2013
Kevin M. Modany	$	333,504
Daniel M. Fitzpatrick	$	267,367
Eugene W. Feichtner	$	1,395,904
June M. McCormack	$	151,017
Glenn E. Tanner	$	1,280,588

ESI Excess Savings Plan. If a Named Executive Officer’s employment with us terminates, all eligible employee salary deferrals, our vested contributions and the attributable interest accrued on those deferrals and contributions under the ESI Excess Savings Plan would be paid in a single lump sum cash payment to the Named Executive Officer on the first day that is six months following his or her termination of employment (because each Named Executive Officer is a “specified employee” within the meaning of Section 409A of the IRC), or within 60 days of his or her death if death occurs prior to payment. If a Change in Control occurs, all Named Executive Officers would receive the balance of their accounts under the ESI Excess Savings Plan in a single lump sum cash payment within 60 day after the Change in Control. See “– Nonqualified Deferred Compensation Plans – ESI Excess Savings Plan.” If a Named Executive Officer’s employment with us terminated or a Change in Control under the ESI Excess Savings Plan occurred, the amount that would have been realized from the distribution of the deferrals, contributions and interest thereon in the Named Executive Officer’s account under the ESI Excess Savings Plan as of December 31, 2013 is as follows:

Named Executive Officer	Amount of Salary Deferrals, ITT/ESI Vested Contributions and Accrued Interest as of December 31, 2013
Kevin M. Modany	$	54,736
Daniel M. Fitzpatrick	$	0
Eugene W. Feichtner	$	3,871
June M. McCormack	$	0
Glenn E. Tanner	$	13,346

Deferred Bonus Plan. If a Named Executive Officer’s employment with us terminates and he or she had elected to receive the deferred portion of his or her annual bonus compensation under the Deferred Bonus Plan following his termination, or the termination was a result of his or her death, the balance of the Named Executive Officer’s account under the Deferred Bonus Plan will be paid in a lump sum on the first day that is six months following his or her termination of employment, or within 60 days of death if his or her death occurs prior to payment. See “– Nonqualified Deferred Compensation Plans – Deferred Bonus Plan.” If a Named Executive Officer’s employment with us terminated, triggering the payment of the balance of his or her account under the Deferred Bonus Plan, the Named Executive Officer would not have realized any amount as of December 31, 2013, because none of them had any amount in his or her account as of that date.

ESI Pension Plan. If a Named Executive Officer has completed three or more years of vesting service, then upon his or her retirement on or after age 55, disability, death or after he or she has both terminated employment and reached age 55, a distribution of the Named Executive Officer’s accrued benefit under the ESI Pension Plan will be paid to the Named Executive Officer in the form and on the date elected by the Named Executive Officer beginning on the first day of any month following the termination of employment after the participant becomes entitled to begin distribution. The Named Executive Officer can elect to receive payment of the distribution in the form of a lump sum, qualified joint and survivor annuity (if he or she is married on the annuity starting date) or life annuity (if he or she is not married on the annuity starting date). See “– Pension Plans – ESI Pension Plan.” If one of the triggering events occurred and a Named Executive Officer elected a lump sum distribution under the ESI Pension Plan, the amount of the Named Executive Officer’s benefit that would have been accrued and payable under the ESI Pension Plan as of December 31, 2013 is as follows:

Named Executive Officer	Balance of ESI Pension Plan Account as of December 31, 2013
Kevin M. Modany	$	34,908	(1)
Daniel M. Fitzpatrick	$	0
Eugene W. Feichtner	$	279,797
June M. McCormack	$	0
Glenn E. Tanner	$	288,614

(1) Benefit payable upon death or disability as of December 31, 2013. If the employment of Mr. Modany was terminated for any reason other than death or disability on December 31, 2013, his benefit would not be payable until he reaches age 55, because he was not at least age 55 as of that date.

-129-

ESI Excess Pension Plan. Following the restatement of the ESI Excess Pension Plan effective January 1, 2008, upon a Named Executive Officer’s death, retirement or other termination of employment, a distribution of the Named Executive Officer’s accrued benefit under the ESI Excess Pension Plan will be paid to the Named Executive Officer in a lump sum on the first day that is six months following his or her termination of employment (because each Named Executive Officer is a “specified employee” within the meaning of Section 409A of the IRC), or within 60 days of his or her death if death occurs prior to payment. See “– Pension Plans – ESI Excess Pension Plan.” If one of the triggering events occurred and a Named Executive Officer received a lump sum distribution under the ESI Excess Pension Plan, the amount of the Named Executive Officer’s benefit that would have been accrued and payable under the ESI Excess Pension Plan as of December 31, 2013 is as follows:

Named Executive Officer	Balance of ESI Excess Pension Plan Account as of December 31, 2013
Kevin M. Modany	$	45,009
Daniel M. Fitzpatrick	$	0
Eugene W. Feichtner	$	75,218
June M. McCormack	$	0
Glenn E. Tanner	$	0

Old Pension Plan. If a Named Executive Officer’s employment with us terminates and the Named Executive Officer qualifies for retirement under the Old Pension Plan, a distribution will be paid to the Named Executive Officer. The Named Executive Officer can elect to receive payment of the distribution of the Named Executive Officer’s accumulated benefit under the Old Pension Plan in the form of a qualified joint and survivor annuity or life annuity. See “– Pension Plans – Old Pension Plan.” If a Named Executive Officer qualified for retirement under the Old Pension Plan, the actuarial present value of the Named Executive Officer’s accumulated benefit under the Old Pension Plan as of December 31, 2013 is set forth in the Pension Benefits Table. See “– Pension Benefits Table.” As of December 31, 2013, Messrs. Feichtner and Tanner were the only Named Executive Officer participants who qualified for retirement under the Old Pension Plan. Mr. Tanner has elected to receive and has begun receiving the early retirement annual benefit under the Old Pension Plan. See “– Pension Benefits Table.”

Director Compensation Table

The following table sets forth information concerning the compensation of our non-employee Directors in 2013 for their service on our Board of Directors in 2013. Mr. Modany, the only employee Director in 2013, did not receive any compensation for his services as a Director of ours in 2013. Mr. Modany’s compensation as an executive officer of ours is disclosed in previous sections of this document.

Director Compensation Table for Fiscal Year 2013

Name	Fees Earned or Paid in Cash (1)		Stock Awards (2)		Option Awards (3)		Nonqualified Deferred Compensation Earnings (4)		All Other Compensation		Total (5)
(a)	(b)		(c)		(d)		(e)		(f)		(g)
John F. Cozzi	$	75,000	$	100,024	$	0	$	0	$	0	$	175,024
John E. Dean	$	75,000	$	100,024	$	0	$	0	$	0	$	175,024
James D. Fowler, Jr.	$	75,000	$	100,024	$	0	$	0	$	0	$	175,024
Joanna T. Lau	$	75,000	$	100,024	$	0	$	0	$	0	$	175,024
Thomas I. Morgan	$	70,890	$	100,024	$	0	$	0	$	0	$	170,914
Samuel L. Odle	$	75,000	$	100,024	$	0	$	7,262	$	0	$	182,286
Vin Weber	$	75,000	$	100,024	$	0	$	0	$	0	$	175,024
John A. Yena	$	75,000	$	100,024	$	0	$	0	$	0	$	175,024

(1) Amounts shown represent the aggregate dollar amount of all fees earned or paid for services as a Director, including meeting fees, committee and/or chairperson fees and annual retainer. In 2013, all fees were paid in cash, but each non-employee Director elected to receive payment of the annual retainer in cash or shares of our common stock, in increments of 25% each. See “–

-130-

Director Compensation – Directors Deferred Compensation Plan.” The full amount of the annual retainer that was paid to or deferred by a non-employee Director, whether in cash or shares of our common stock, is reported in this column. The grant date fair value of any portion of the annual retainer that a non-employee Director elected to receive in shares of our common stock is set forth in footnote (2) below.

(2) Amounts shown represent the aggregate grant date fair value, computed in accordance with ASC 718, of all RSU awards granted for services as a Director in 2013. In 2013, each non-employee Director received a grant of 3,598 RSUs that will be settled in shares of our common stock after vesting. The aggregate grant date fair value includes any earnings, such as dividends, that may be received on the stock awards. In 2013, each non-employee Director elected to receive payment of the annual retainer in cash or shares of our common stock, in increments of 25% each. See “– Director Compensation – Directors Deferred Compensation Plan.” The amount related to any portion of the annual retainer that a non-employee Director elected to receive in shares of our common stock is included in column (b) of the table, but the grant date fair value of such shares is disclosed in the table below.

To determine the grant date fair value of stock awards, we use the closing market price of a share of our common stock on the effective date of the stock award. The amounts ultimately realized by the non-employee Directors from the stock awards will depend on the price of our common stock in the future and may be quite different from the value shown. The following table sets forth information regarding the grant date fair value, computed in accordance with ASC 718, of each stock award granted in 2013 for services as a non-employee Director:

Grant Date Fair Value of Stock Awards in Fiscal Year 2013

Name	Grant Date Fair Value of Stock Award
(a)	(b)
John F. Cozzi
Portion of Retainer Payable in Stock	$	74,987
Amended 2006 Plan Award	$	100,024
John E. Dean
Portion of Retainer Payable in Stock	$	74,987
Amended 2006 Plan Award	$	100,024
James D. Fowler, Jr.
Portion of Retainer Payable in Stock		N/A
Amended 2006 Plan Award	$	100,024
Joanna T. Lau
Portion of Retainer Payable in Stock		N/A
Amended 2006 Plan Award	$	100,024
Thomas I. Morgan
Portion of Retainer Payable in Stock		N/A
Amended 2006 Plan Award	$	100,024
Samuel L. Odle
Portion of Retainer Payable in Stock		N/A
Amended 2006 Plan Award	$	100,024
Vin Weber
Portion of Retainer Payable in Stock	$	74,987
Amended 2006 Plan Award	$	100,024
John A. Yena
Portion of Retainer Payable in Stock		N/A
Amended 2006 Plan Award	$	100,024

“N/A” means not applicable.

The following table sets forth information regarding the aggregate number of unvested stock awards granted by us to the non-employee Directors that were outstanding on December 31, 2013:

-131-

Outstanding Stock Awards at Fiscal Year-End 2013

Name	Number of Shares or Units of Stock that have Not Vested (A)		Market Value of Shares or Units of Stock that have Not Vested (B)
(a)	(b)		(c)
John F. Cozzi
05/17/11 Award (C)		1,412	$	47,415
05/22/12 Award (D)		1,722	$	57,825
05/21/13 Award (E)		3,598	$	120,821
John E. Dean
05/17/11 Award (C)		1,412	$	47,415
05/22/12 Award (D)		1,722	$	57,825
05/21/13 Award (E)		3,598	$	120,821
James D. Fowler, Jr.
05/17/11 Award (C)		1,412	$	47,415
05/22/12 Award (D)		1,722	$	57,825
05/21/13 Award (E)		3,598	$	120,821
Joanna T. Lau
05/17/11 Award (C)		1,412	$	47,415
05/22/12 Award (D)		1,722	$	57,825
05/21/13 Award (E)		3,598	$	120,821
Thomas I. Morgan
05/21/13 Award (E)		3,598	$	120,821
Samuel L. Odle
05/17/11 Award (C)		1,412	$	47,415
05/22/12 Award (D)		1,722	$	57,825
05/21/13 Award (E)		3,598	$	120,821
Vin Weber
05/17/11 Award (C)		1,412	$	47,415
05/22/12 Award (D)		1,722	$	57,825
05/21/13 Award (E)		3,598	$	120,821
John A. Yena
05/17/11 Award (C)		1,412	$	47,415
05/22/12 Award (D)		1,722	$	57,825
05/21/13 Award (E)		3,598	$	120,821

(A) Amounts shown represent the total number of shares or units of our common stock that have not vested.

(B) Amounts shown represent the aggregate market value of shares of our common stock that have not vested. The aggregate market value is calculated by multiplying the number of shares or units by the closing market price of a share of our common stock on December 31, 2013.

(C) This RSU award vested in full on May 17, 2014.

(D) This RSU award vests in full on May 22, 2015.

(E) This RSU award vests in full on May 21, 2016.

-132-

(3) In 2013, none of the non-employee Directors received any stock options or SARs from us. There were no adjustments or amendments made in 2013 to the exercise price of any option awards held by any of the non-employee Directors, whether through amendment, cancellation or replacement grants, or any other means (such as a repricing), or that otherwise materially modified any option awards. The outstanding option awards at December 31, 2013, for each of the non-employee Directors were as follows:

Outstanding Option Awards at Fiscal Year-End 2013

	Number of Securities Underlying Unexercised Options				Option Exercise		Option Expiration
Name	Exercisable (A)		Unexercisable (B)		Price		Date
(a)	(b)		(c)		(d)		(e)
John F. Cozzi
05/18/04 Award (C)		10,000		0	$	38.89		05/18/14
John E. Dean
05/18/04 Award (C)		10,000		0	$	38.89		05/18/14
Joanna T. Lau
05/18/04 Award (C)		10,000		0	$	38.89		05/18/14
Vin Weber
05/18/04 Award (C)		7,500		0	$	38.89		05/18/14

(A) Amounts shown represent on an award-by-award basis, the number of securities underlying unexercised options, including awards that have been transferred other than for value, that are exercisable.

(B) Amounts shown represent on an award-by-award basis, the number of securities underlying unexercised options, including awards that have been transferred other than for value, that are unexercisable.

(C) This stock option award vested in one installment on May 18, 2005.

(4) Amounts shown represent the above-market or preferential earnings on compensation deferred under the Directors Deferred Compensation Plan. See “—Director Compensation – Directors Deferred Compensation Plan.” Interest is above-market only if the rate of interest exceeds 120% of the applicable federal long-term rate, with compounding (as prescribed under Section 1274(d) of the IRC), at the rate that corresponds most closely to the rate under the applicable plan at the time the interest rate or formula is set. In the event of a discretionary reset of the interest rate, the requisite calculation is made on the basis of the interest rate at the time of such reset, rather than when originally established. Only the above-market portion of the interest is included.

(5) Amounts shown represent the sum of the dollar values for each compensation element shown in columns (b) through (f).

Director Compensation

Retainer and Fees. We do not compensate any Director who is an employee of ours for service as a member of our Board of Directors or any standing committee of our Board of Directors. The compensation for non-employee Directors consists of:

• an annual retainer of $75,000 payable in one installment on the first business day of each year, at the election of each non-employee Director, in cash or shares of our common stock in increments of 25% each;

• no separate meeting fees; and

• an annual grant under the Amended 2006 Plan of RSUs with a time-based period of restriction that:

• has a value of $100,000, plus the value associated with any fractional RSU necessary to cause the grant to be for a whole number of RSUs, pursuant to which the value is determined based on the closing market price of a share of our common stock on the effective date of the grant;

• is effective on May 1 in each year (except in 2014, the grant date has been postponed until the third business day following the date that we become current in our filings with the SEC);

• has a time-based period of restriction of one year; and

• is settled on the first business day following the last day of the period of restriction by the delivery of one share of our common stock for each RSU in the grant.

We also reimburse Directors for reasonable, out-of-pocket travel expenses related to attending our Board of Directors and its committee meetings and other business of the Board.

On August 4, 2014, John E. Dean was appointed our Executive Chairman and became an employee of ours. In connection with his appointment as Executive Chairman, we entered into a letter agreement with Mr. Dean which provides for an annual base salary of $575,000 and a grant of RSUs on August 4, 2014 that had a value of $1,000,000, based on the closing price of our common stock on the date of grant, which resulted in a grant of 129,534 RSUs to Mr. Dean on that date. The RSUs will vest, subject to Mr. Dean’s continued service as Executive Chairman or as a member of the Board, on the first anniversary of the grant date or, if earlier, upon his termination of employment due to death or disability. Mr. Dean will receive no other compensation for his service as Executive Chairman, but will continue to vest in the equity-based awards granted to him in connection with his service as a non-employee Director.

Timing of Equity-Based Compensation Grants. The Compensation Committee makes recommendations to our Board of Directors regarding grants of equity-based compensation to our non-employee Directors. All equity-based compensation awards to our non-employee Directors are granted exclusively by our Board of Directors. Beginning in 2014, our Board of Directors established May 1 of each year as the effective date of grant of equity-based compensation to our non-employee Directors. The 2014 grant, however, has been postponed until the third business day following the date that we become current in our filings with

-133-

the SEC. The exercise price of any stock options included in those equity-based compensation grants is the closing market price of a share of our common stock on the effective date of the grant. The number of RSUs included in those grants is specified by the Board of Directors based on the closing market price of a share of our common stock on the effective date of the grant.

We do not time our release of material non-public information for the purpose of affecting the value of our non-employee Directors’ compensation. Nevertheless, our process for granting equity-based compensation may result in equity-based compensation, including stock options, being granted to our non-employee Directors at times when our Board of Directors or the Compensation Committee is in possession of material non-public information about us. This possibility is not taken into account in determining whether to make the equity-based compensation awards or the amount or value of those awards.

1999 Directors Stock Plan. On July 28, 1999, we established the 1999 Outside Directors Stock Option Plan (the “1999 Directors Stock Plan”), which provided for awards of nonqualified stock options to non-employee Directors. An aggregate of 500,000 shares of our common stock are reserved for issuance for option awards under the 1999 Directors Stock Plan (subject to adjustment in certain events and as adjusted for our stock split). The 1999 Directors Stock Plan was not approved by our shareholders.

The 1999 Directors Stock Plan is administered by the Board. Each non-employee Director received an annual stock option under the plan to purchase shares of our common stock on the tenth business day following the annual meeting of shareholders, provided that such non-employee Director served in that capacity both before and after the annual meeting. No annual awards of nonqualified stock options under the 1999 Directors Stock Plan have been made after 2005. The number of shares of our common stock subject to options under the 1999 Directors Stock Plan is subject to adjustment in certain events.

The exercise price of a stock option awarded under the 1999 Directors Stock Plan could not be less than 100% of the fair market value of our common stock on the date of the award. All stock options granted under the 1999 Directors Stock Plan that were outstanding as of December 31, 2013 expire in May 2014. The shares of our common stock issued upon the exercise of a stock option under the 1999 Directors Stock Plan may be made available from treasury shares or authorized but unissued shares. The option price may be paid:

• by check;

• in shares of our common stock;

• through a simultaneous sale through a broker of shares of our common stock acquired upon the exercise of the stock option; or

• by any combination of the foregoing.

See Exhibit No. 4.3 to our Registration Statement on Form S-8 (Registration No. 333-84871), Exhibit No. 10.37 to our Quarterly Report on Form 10-Q for the second fiscal quarter ended June 30, 2003, Exhibit No. 10.42 to our Quarterly Report on Form 10-Q for the first fiscal quarter ended March 31, 2004 and Exhibit No. 10.47 to our Current Report on Form 8-K, dated January 25, 2005, filed with the SEC for a complete copy of the 1999 Directors Stock Plan, as amended.

No awards were made in 2013, and no further awards will be made, under the 1999 Directors Stock Plan, as a result of our shareholders’ approval of our adoption of the 2006 Equity Compensation Plan at the 2006 Annual Meeting of Shareholders on May 9, 2006. Our non-employee Directors participate in the Amended 2006 Plan. See “– Equity Compensation and Qualified Savings Plans – Amended 2006 Plan.”

Directors Deferred Compensation Plan. On October 1, 1999, we established, and effective January 1, 2008, we restated, the Directors Deferred Compensation Plan, an unfunded, nonqualified plan covering all of our non-employee Directors. The Directors Deferred Compensation Plan provides that each non-employee Director may elect to receive payment of the annual retainer in cash or in shares of our common stock, in increments of 25% each. A non-employee Director who elects payment in shares of our common stock will receive that number of shares equal to the number obtained by dividing the dollar amount of the portion of the annual retainer to be paid in shares of our common stock by the fair market value of one share of our common stock determined as of the payment date. The value of any fractional share resulting from this calculation will be paid to the Director in cash.

The Directors Deferred Compensation Plan also provides that each non-employee Director may elect to defer payment of all or a portion of the annual retainer. The deferral of payment of cash or shares of our common stock can only be made in increments of 25%. Any deferred cash amounts will accrue interest at the rate of 6% compounded annually. Any deferred shares of our common stock will be credited with any cash dividends on those shares and, on a semi-annual basis, those cash dividends will be converted to shares of our common stock based on its fair market value at the time of the conversion.

No cash or shares of our common stock deferred by a non-employee Director under the Directors Deferred Compensation Plan will be paid to the non-employee Director until he or she is no longer a Director.

Non-Employee Director Participation in Pension Plans. None of our non-employee Directors participate in any of our defined benefit or actuarial pension plans (including supplemental plans). Mr. Fowler, however, participates in the Old Pension Plan as a result of his prior employment by ITT Corporation or one of its affiliated companies that participated in that plan. Any change in the actuarial present value of Mr. Fowler’s accumulated benefit under the Old Pension Plan in 2013 was not affected by his service as a non-employee Director on our Board of Directors. See “– Pension Plans – Old Pension Plan.”

-134-

Compensation Committee Interlocks and Insider Participation

None of the Compensation Committee members, John F. Cozzi, James D. Fowler, Jr., Samuel L. Odle and John A. Yena, during 2013 was:

• an officer or employee of ours;

• a former officer of ours; or

• involved in a relationship requiring disclosure as a related person transaction pursuant to Item 404 of Regulation S-K under the Exchange Act or as an interlocking executive officer/director pursuant to Item 407(e)(4)(iii) of Regulation S-K under the Exchange Act.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

Equity Compensation Plan Information

The following table sets forth information, as of December 31, 2013, about shares of our common stock that may be issued under our equity compensation plans that (a) have been approved by our shareholders and (b) have not been approved by our shareholders.

Equity Compensation Plan Information

	Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights		Weighted Average Exercise Price of Outstanding Options, Warrants and Rights			Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans  (Excluding Securities Reflected in Column (a))
Plan Category	(a)		(b)			(c)
Equity compensation plans approved by security holders (1)		2,032,792	$	83.01	(2)		3,374,913	(3)(4)(5)
Equity compensation plans not approved by security holders (6)		86,436		38.89	(2)		N/A	(7)
Total		2,119,228	$	81.77	(2)		3,374,913

(1) These equity compensation plans include the 1997 Stock Plan and the Amended 2006 Plan. The material terms of each of these plans are described above. See “– 1997 Stock Plan” and “– Amended 2006 Plan.”

(2) The weighted average exercise price is calculated based on those awards included in column (a) that have a specified exercise price, namely, outstanding stock options. Since the outstanding RSUs and the shares credited under the Directors Deferred Compensation Plan that are included in column (a) have no exercise price, they have been excluded from the weighted average exercise price calculations in this column (b).

(3) This number does not include any shares under the 1997 Stock Plan, because all shares to be issued upon exercise of outstanding stock option awards under the 1997 Stock Plan are included in column (a), and no new awards will be made under the 1997 Stock Plan.

The total number of shares of our common stock available for awards under the Amended 2006 Plan is 7,350,000, subject to antidilution adjustments. Each share underlying stock options and SARs granted under the Amended 2006 Plan, and not forfeited or terminated, will reduce the number of shares available for future awards under the Amended 2006 Plan by one share. The delivery of a share in connection with a “full-value award” (i.e., an award of restricted stock, RSUs, performance shares, performance units or any other stock-based award with value denominated in shares) will reduce the number of shares remaining for other awards by three shares, if the full-value award was granted prior to May 7, 2013, and by two shares, if the full-value award was granted after that date.

(4) The aggregate fair market value (determined on the date of grant) of the shares subject to incentive stock options awarded to employees under the 1997 Stock Plan or the Amended 2006 Plan that become exercisable for the first time by the employee in any calendar year may not exceed $100,000.

(5) Securities remaining available for future issuance under the Amended 2006 Plan include stock options (incentive and nonqualified), SARs, restricted stock, RSUs, performance shares, performance units and other stock-based awards, or any combination of the foregoing, as the Compensation Committee and Board of Directors may determine. The maximum number of performance shares under the Amended 2006 Plan that may be granted to any eligible participant in any given calendar year is 250,000 shares.

(6) These equity compensation plans include the:

• 1999 Directors Stock Plan;

• Directors Deferred Compensation Plan; and

• Deferred Bonus Plan.

The material terms of each of these plans are described elsewhere in this document. See “– Director Compensation –1999 Directors Stock Plan” and “– Directors Deferred Compensation Plan,” and “– Nonqualified Deferred Compensation Plans – Deferred Bonus Plan.”

(7) This number does not include any shares under the 1999 Directors Stock Plan, because all shares to be issued upon exercise

-135-

of outstanding stock option awards under the 1999 Directors Stock Plan are included in column (a), and no new awards will be made under the 1999 Directors Stock Plan. There is no limit on the number of shares of our common stock available for future issuance under either the Directors Deferred Compensation Plan or the Deferred Bonus Plan.

Stock Ownership of Certain Beneficial Owners and Management

The following table sets forth, as of September 30, 2014, the number of shares of our common stock beneficially owned by any person (including any group) known by management to beneficially own more than 5% of our common stock, by each Director, by each of the Named Executive Officers and by all of our current Directors and the executive officers as a group. Unless otherwise indicated in a footnote, each individual or group possesses sole voting and investment power with respect to all shares indicated as beneficially owned. None of the shares owned by our Directors and executive officers are pledged as security. No Director owns any “qualifying” shares.

	ITT/ESI Common Stock
Name of Beneficial Owner	Number of Shares Beneficially Owned(1)			Percent of Class
Select Equity Group, L.P. George S. Loening		2,957,125	(2)		12.6	%
380 Lafayette Street, 6th Floor New York, NY 10003
Warburg Pincus Asset Management, Inc.		2,933,150	(3)		12.5	%
466 Lexington Avenue New York, NY 10017
Putnam Investments, LLC Putnam Investment Management, LLC The Putnam Advisory Company, LLC Putnam Voyager Fund		2,685,687	(4)		11.5	%
One Post Office Square Boston, MA 02109
Blum Capital Partners, L.P. Richard C. Blum & Associates, Inc. Blum Strategic GP III, L.L.C. Blum Strategic GP III, L.P. Blum Strategic Partners III, L.P. Blum Strategic GP IV, L.L.C. Blum Strategic GP IV, L.P. Blum Strategic Partners IV, L.P.		2,296,913	(5)		9.8	%
c/o Blum Capital Partners, L.P. 909 Montgomery Street Suite 400 San Francisco, CA 94133
BlackRock, Inc.		1,772,915	(6)		7.6	%
40 East 52nd Street New York, NY 10022
Clifton Park Capital Management, LLC		1,594,266	(7)		6.8	%
2711 Centerville Road, Suite 400 Wilmington, DE 19808-1645
Providence Equity Partners VI L.P. Providence Equity GP VI L.P. Providence Equity Partners VI L.L.C. Jonathan M. Nelson Glenn M. Creamer Paul J. Salem		1,483,610	(8)		6.3	%
c/o Providence Equity Partners L.L.C. 50 Kennedy Plaza, 18th Floor Providence, RI 02903
Point72 Asset Management, L.P. Point72 Capital Advisors, Inc. Cubist Systematic Strategies, LLC EverPoint Asset Management, LLC Steven A. Cohen		1,337,344	(9)		5.7	%
72 Cummings Point Road Stamford, CT 06902
The Vanguard Group		1,289,405	(10)		5.5	%
100 Vanguard Blvd. Malvern, PA 19355
Kevin M. Modany		511,525	(11)		2.1	%
Eugene W. Feichtner		86,314	(12)			*
Daniel M. Fitzpatrick		91,098	(13)			*
June M. McCormack		68,428	(14)			*
Glenn E. Tanner		57,827	(15)			*
Jerry M. Cohen		0				*
John F. Cozzi		24,427	(16)			*
John E. Dean		37,996	(17)			*
James D. Fowler, Jr.		12,679	(18)			*
Joanna T. Lau		13,426	(19)			*
Thomas I. Morgan		0				*
Samuel L. Odle		8,692	(20)			*
Vin Weber		30,333	(21)			*
John A. Yena		10,665	(22)			*
All current Directors and executive officers as a group (18 individuals)		961,256	(23)		4.0	%

-136-

* Less than 1%.

(1) All shares of our common stock are owned directly except as otherwise indicated. Pursuant to the SEC’s regulations, shares (a) receivable by Directors and executive officers upon exercise of stock options exercisable within 60 days after September 30, 2014, (b) receivable by Directors and executive officers upon vesting of RSUs within 60 days after September 30, 2014, (c) allocated to the accounts of certain Directors and executive officers under the ESI 401(k) Plan at September 30, 2014 or (d) credited to the accounts of certain Directors under the Directors Deferred Compensation Plan at September 30, 2014, are deemed to be beneficially owned by such Directors and executive officers.

(2) Based solely on information in reports filed by the beneficial owners under Section 13(d) or 13(g) of the Exchange Act. George S. Loening is the majority owner of Select Equity Group, L.P. (“Select Equity”) and managing member of its general partner. Select Equity is an investment adviser and Select Equity and George S. Goening is a control person possess shared power to vote or direct the vote of, and dispose or direct the disposition of, 2,957,125 shares.

(3) Based solely on information in reports filed by the beneficial owner under Section 13(d) or 13(g) of the Exchange Act. The beneficial owner is a registered investment adviser and has (a) sole power to vote or direct the vote of 2,396,100 shares, (b) shared power to vote or direct the vote of 513,450 shares and (c) sole power to dispose or direct the disposition of 2,933,150 shares.

(4) Based solely on information in reports filed by the beneficial owners under Section 13(d) or 13(g) of the Exchange Act. Putnam Investments, LLC, d/b/a Putnam Investments (“PI”) wholly owns two registered investment advisers, Putnam Investment Management, LLC (“PIM”) and the Putnam Advisory Company, LLC (“PAC”). Both subsidiaries have dispositive power over the shares as investment managers. Putnam Voyager Fund (“PVF”) is part of the Putnam Family of Funds. PI possesses sole power to vote or to direct the vote of 75,530 shares and sole power to dispose or direct the disposition of 2,685,687 shares. PIM possesses sole power to vote or to direct the vote of 2,911 shares and sole power to dispose or direct the disposition of 2,598,417 shares. PAC possesses sole power to vote or to direct the vote of 72,619 shares and sole power to dispose or direct the disposition of 87,270 shares. PVF possesses sole power to vote or to direct the vote of, and sole power to dispose or direct the disposition of, 1,294,711 shares.

(5) Based solely on information in reports filed by the beneficial owners under Section 13(d) or 13(g) of the Exchange Act. The beneficial owners may be deemed to be members in a group that possesses voting and investment power over a total of 2,296,913 shares. Blum Capital Partners, L.P. (“Blum L.P.”) is a partnership and a registered investment advisor. Richard C. Blum & Associates, Inc. (“RCBA”) is the sole general partner of Blum L.P. RCBA directly holds 11,300 shares. Blum Strategic GP III, L.L.C. (“Blum GP III”) holds 1,129,388 shares and is the general partner of Blum Strategic GP III, L.P., which is the general partner of Blum Strategic Partners III, L.P. Blum Strategic GP IV, L.L.C. (“Blum GP IV”) holds 1,156,225 shares and is the general partner of Blum Strategic GP IV, L.P., which is the general partner of Blum Strategic Partners IV, L.P. Blum L.P., Blum GP III and Blum GP IV have shared power to vote or direct the vote of, and dispose or direct the disposition of, 2,296,913 shares.

-137-

(6) Based solely on information in reports filed by the beneficial owner under Section 13(d) or 13(g) of the Exchange Act. The beneficial owner is a parent holding company or control person and possesses sole power to (a) vote or direct the vote of 1,712,207 shares, and (b) dispose or direct the disposition of 1,772,915 shares. The beneficial owner reported that the following of its subsidiaries acquired the shares: BlackRock Advisors (UK) Limited, BlackRock Advisors, LLC, BlackRock Asset Management Canada Limited, BlackRock Asset Management Ireland Limited, BlackRock Fund Advisors, BlackRock Institutional Trust Company, N.A., BlackRock International Limited, BlackRock Investment Management (Australia) Limited, BlackRock Investment Management (UK) Ltd. and BlackRock Investment Management, LLC.

(7) Based solely on information in reports filed by the beneficial owner under Section 13(d) or 13(g) of the Exchange Act. The beneficial owner possesses shared power to vote or direct the vote of, and dispose or direct the disposition of, 1,594,266 shares.

(8) Based solely on information in reports filed by the beneficial owners under Section 13(d) or 13(g) of the Exchange Act. Providence Equity Partners VI L.P. (“PEP VI”), a partnership, is the record holder of 1,483,610 shares. Based on the following relationships, the beneficial owners reported shared voting and dispositive power over 1,483,610 shares: (a) Providence Equity GP VI L.P. (“PEP GP VI”) is the sole general partner of PEP VI; (b) Providence Equity Partners VI L.L.C. (“PEP VI LLC”) is the sole general partner of PEP GP VI; and (c) Messrs. Nelson, Creamer and Salem each are members of PEP VI LLC and partners of PEP GP VI. Each of PEP GP VI, PEP VI LLC and Messrs. Nelson, Creamer and Salem disclaims beneficial ownership of the shares reported, except to the extent of its or his pecuniary interest therein.

(9) Based solely on information in reports filed by beneficial owners under Section 13(d) or 13(g) of the Exchange Act. Pursuant to investment management agreements, each of Point72 Asset Management, L.P. (“PAM”), Cubist Systematic Strategies, LLC (“CSS”) and EverPoint Asset Management (“EAM”) maintains investment and voting power with respect to the securities held by certain investment funds it manages. Point72 Capital Advisors, Inc. (“PCA”) is the general partner of PAM. Mr. Cohen controls each of PCA, CSS and EAM. Based on these relationships and shares that may be deemed to be beneficially owned by certain of the foregoing entities, (i) each of PAM and PCA has shared power to vote or direct the vote of, and shared power to dispose or direct the disposition of, 488,711 shares; (ii) CSS has shared power to vote or direct the vote of, and shared power to dispose or direct the disposition of, 929 shares; (iii) EAM has shared power to vote or direct the vote of, and shared power to dispose or direct the disposition of, 847,704 shares; and (iv) Mr. Cohen has shared power to vote or direct the vote of, and shared power to dispose or direct the disposition of, 1,337,344 shares. Each of PAM, PCA, CSS, EAM and Mr. Cohen disclaims beneficial ownership of any of the securities reported. The address of the principal business office of (i) PAM and PCA is 72 Cummings Point Road, Stamford, CT 06902; (ii) CSS is 330 Madison Avenue, New York, NY 10173; and (iii) EAM is 510 Madison Avenue, New York, NY 10022.

(10) Based solely on information in reports filed by the beneficial owner under Section 13(d) or 13(g) of the Exchange Act. The beneficial owner is an investment adviser and possesses: (a) sole power to vote or direct the vote of 32,563 shares; (b) sole power to dispose or direct the disposition of 1,257,642 shares; and (c) shared power to dispose or direct the disposition of 31,763 shares.

(11) This number includes 24,654 shares owned directly, 225 shares owned under the ESI 401(k) Plan and 486,646 shares subject to presently exercisable options.

(12) This number includes 5,359 shares owned directly, 7,948 shares owned under the ESI 401(k) Plan and 73,007 shares subject to presently exercisable options.

(13) This number includes 4,757 shares owned directly and 86,341 shares subject to presently exercisable options.

(14) This number includes 5,929 shares owned directly and 62,499 shares subject to presently exercisable options.

(15) This number includes 1,023 shares owned directly and 56,804 shares subject to presently exercisable options.

(16) This number includes 9,297 shares owned directly, 2,000 shares owned by Mr. Cozzi’s children and 13,130 shares deferred under the Directors Deferred Compensation Plan.

(17) This number includes 21,801 shares owned directly and 16,195 shares deferred under the Directors Deferred Compensation Plan.

(18) This number includes 9,072 shares owned directly and 3,607 shares held by a revocable trust for the benefit of Mr. Fowler and his spouse.

(19) This number includes 10,877 shares owned directly and 2,549 shares deferred under the Directors Deferred Compensation Plan.

(20) This number includes 5,835 shares owned directly and 2,857 shares deferred under the Directors Deferred Compensation Plan.

(21) This number includes 11,797 shares owned directly and 18,536 shares deferred under the Directors Deferred Compensation Plan.

(22) This number includes 8,297 shares owned directly and 2,368 shares deferred under the Directors Deferred Compensation Plan.

(23) This number includes 120,240 shares owned directly, 5,607 shares owned indirectly, 8,173 shares owned under the ESI 401(k) Plan, 771,129 shares subject to presently exercisable options, 472 shares under RSUs that will vest within 60 days and 55,635 shares deferred under the Directors Deferred Compensation Plan.

-138-

Item 13. Certain Relationships and Related Transactions, and Director Independence.

Certain Relationships and Related Person Transactions

Our written policies and procedures for the review, approval or ratification of any current or proposed transaction potentially involving an amount in excess of $120,000 in which we are or will become a participant and in which any related person had, or will have, a direct or indirect material interest (“Transaction”) are set forth in our Corporate Governance Guidelines and are posted on our website at www.ittesi.com. These policies and procedures are as follows:

• Our Board of Directors must be notified in advance or as soon as practicable of the Transaction.

• The notification to our Board should be in writing and contain the following information regarding the Transaction:

• the name of the related person;

• the basis on which the person is a related person;

• a detailed description of the related person’s interest in the Transaction, including the related person’s position(s) or relationship(s) with, or ownership in, a firm, corporation or other entity that is a party to, or has an interest in, the Transaction;

• the approximate dollar value of the amount involved in the Transaction;

• the approximate dollar amount of the related person’s interest in the Transaction, which must be computed without regard to the amount of profit or loss;

• in the case of an indebtedness Transaction:

• the largest aggregate amount of all indebtedness outstanding at any time since the beginning of our last fiscal year and all amounts of interest payable on the outstanding indebtedness during our last fiscal year (excluding amounts due from the related person for purchases of goods and services subject to usual trade terms, for ordinary business travel and expense payments and for other transactions in the ordinary course of business);

• the largest aggregate amount of principal that could be outstanding;

• a schedule specifying the principal amount that is anticipated to be outstanding from time to time during the Transaction;

• the term of the indebtedness;

• the repayment schedule of the principal amount;

• the total amount of any interest that is anticipated to accrue on the principal amount;

• the interest rate; and

• the payment schedule of the interest that accrues on the principal amount;

• in the case of a lease or other Transaction providing for periodic payments or installments, the aggregate amount of all periodic payments or installments due on or after the beginning of our last fiscal year, including any required or optional payments due during or at the conclusion of the Transaction;

• in the case of a Transaction involving a purchase or sale of assets by or to us otherwise than in the ordinary course of business, the cost of the assets to the purchaser and, if acquired within two years of the Transaction, the cost of the assets to the seller and related information about the price of the assets; and

• any other information regarding the Transaction or related person in the context of the Transaction that a reasonable investor of ours would consider material in light of the circumstances of the Transaction.

• Upon receipt of the above information, all of the members of our Board of Directors (except for any Director who is the related person or whose immediate family member is the related person) will review and consider the information and determine whether it is in our and our shareholders’ best interests for the Board to approve or ratify the Transaction.

• Our Board of Directors is of the general belief that, except in exceptional circumstances, we should try to avoid participating in any Transaction, regardless of the Transaction’s merit or benefit to us or our shareholders, in order to avoid any appearance of a conflict of interest or impropriety that may be perceived from our participation in the Transaction.

• If our Board of Directors approves or ratifies our participation in a Transaction, we may participate in the Transaction.

• If our Board of Directors does not approve or ratify our participation in a Transaction:

• we will not participate in the Transaction, if our participation has not yet begun; or

• we will attempt to end or limit as much as possible our participation in the Transaction without breaching any of our obligations arising from the Transaction.

• We will disclose our participation in any Transaction in accordance with Item 404(a) of Regulation S-K under the Exchange Act.

A “transaction” includes, but is not limited to, any financial transaction, arrangement or relationship (including any indebtedness or guarantee of indebtedness) or any series of similar transactions, arrangements or relationships, except for:

• any indebtedness transaction in which the related person qualifies as such solely because he or she is a beneficial owner of more than 5% of any class of our voting securities or is an immediate family member of the beneficial owner;

-139-

• any employment relationship or transaction involving any of our executive officers and any related compensation solely resulting from that employment relationship or transaction, if:

• we report the compensation arising from the relationship or transaction to the SEC in accordance with Item 402 of Regulation S-K under the Exchange Act; or

• the executive officer is not an immediate family member of the related person and we would have reported such compensation to the SEC in accordance with Item 402 of Regulation S-K under the Exchange Act as compensation earned for services to us if the executive officer was a “named executive officer” of ours (as that term is defined in Item 402(a)(3) of Regulation S-K under the Exchange Act) and such compensation had been approved as such by the Compensation Committee of our Board of Directors;

• any compensation paid to any of our Directors, if the compensation is reported to the SEC in accordance with Item 402(k) of Regulation S-K under the Exchange Act;

• any transaction in which the rates or charges involved in the transaction are determined by competitive bids;

• any transaction that involves the rendering of services as a common or contract carrier or public utility at rates or charges fixed in conformity with law or governmental authority;

• any transaction that involves services as a bank depository of funds, transfer agent, registrar, trustee under a trust indenture or similar services; or

• any transaction in which the interest of the related person arises solely from the ownership of a class of our equity securities and all holders of that class of equity securities received the same benefit or a pro rata basis.

A “related person” means:

• any of our Directors or executive officers;

• anyone who has been nominated to be elected one of our Directors;

• any beneficial owner of more than 5% of any class of our voting securities; and

• any immediate family member of any of the foregoing persons.

An “immediate family member” means any child, stepchild, parent, stepparent, spouse, sibling, father and mother-in-law, son and daughter-in-law, brother and sister-in-law, and any person (other than a tenant or employee) who shares the household of a Director, executive officer, nominee for Director or beneficial owner of more than 5% of any class of our voting securities.

A person who has a position or relationship with a firm, corporation or other entity that engages in a transaction with us will not be deemed to have an “indirect material interest” where:

• the interest arises only:

• from such person’s position as a director of another corporation or organization that is a party to the transaction;

• from the direct or indirect ownership by such person and all other related persons, in the aggregate, of less than a 10% equity interest in another person (other than a partnership) that is a party to the transaction; or

• from both such position and ownership; or

• the interest arises only from such person’s position as a limited partner in a partnership in which the person and all other related persons, in the aggregate, have an interest of less than 10%, and the person is not a general partner of and does not hold another position in the partnership.

There have been no such Transactions since January 1, 2013 and none are currently proposed.

Independent Directors

        Our Board of Directors currently contains eight non-employee Directors: Messrs. Cohen, Cozzi, Fowler, Morgan, Odle, Weber and Yena, and Ms. Lau. Our Board of Directors has adopted categorical standards to assist it in making determinations of independence. Any transactions, relationships or arrangements that we may have with any of our Directors are immaterial, so long as none of those transactions, relationships or arrangements caused the Director to violate any of our categorical standards of independence. Our categorical standards of independence are contained in Section 5 of our Corporate Governance Guidelines and are posted on our website at www.ittesi.com. Our Board of Directors has determined that each of our current non-employee Directors is independent, and each of the non-employee Directors in 2013 was independent, pursuant to our categorical standards of independence and in accordance with Section 303A.02 of the NYSE Listed Company Manual. John E. Dean, a Director of ours since December 1994, was appointed our Executive Chairman and became an employee of ours on August 4, 2014. Prior to that date, Mr. Dean was a non-employee and independent Director. Due to the fact that Mr. Dean became an employee of ours on August 4, 2014 and was no longer independent, on that date Mr. Dean resigned as a member and Chairman of the Audit Committee of our Board of Directors and as a member of the Nominating and Corporate Governance Committee of our Board of Directors. The letter agreement between us and Mr. Dean provides that after we eliminate the role of Executive Chairman (which is expected to occur when we hire a new Chief Executive Officer), Mr. Dean will remain on our Board of Directors as a non-employee Director for the remainder of his term. In the application of our categorical standards of independence to determine the independence of each non-employee Director for service on our Board of Directors and on its Audit, Compensation and Nominating and Corporate Governance Committees, there were no transactions, relationships or arrangements with our non-employee Directors that were required to be disclosed pursuant to Item 404(a) of Regulation S-K under the Exchange Act, or if not disclosed, that our Board considered.

-140-

Item 14. Principal Accountant Fees and Services.

Audit, Audit-Related, Tax and All Other Fees

The following table sets forth fees for audit services provided by PWC, our independent registered public accounting firm, for the audit of our consolidated financial statements for the years ended December 31, 2013 and 2012, and fees billed for other services rendered by PWC during those periods:

Type of Service	2013			2012
Audit	$	5,798,603	(1)	$	999,466	(2)
Audit-Related	$	140,317	(3)	$	211,372	(3)
Tax	$	264,532	(4)	$	300,191	(4)
All Other	$	2,000	(5)	$	1,800	(5)

(1) Represents fees for the following services associated with the audit or review of our financial statements:

• auditing our annual consolidated financial statements for our 2013 fiscal year;

• reviewing our consolidated financial statements included in our Quarterly Reports on Form 10-Q and our amended Quarterly Reports on Form 10-Q/A for the quarters in our 2013 fiscal year;

• conducting reviews of our internal control over financial reporting and assisting with requirements related to internal control over financial reporting as of December 31, 2013;

• conducting statutory audits (such as federal and state student financial aid compliance audits) for 2013; and

• providing other audit services in connection with statutory and regulatory filings or engagements for our 2013 fiscal year.

Those services were rendered in both the 2013 and 2014 calendar years.

(2) Represents fees for the following services associated with the audit or review of our financial statements:

• auditing our annual consolidated financial statements for our 2012 fiscal year;

• reviewing our consolidated financial statements included in our Quarterly Reports on Form 10-Q which were filed with the SEC in our 2012 fiscal year;

• conducting reviews of our internal control over financial reporting and assisting with requirements related to internal control over financial reporting in 2012;

• conducting statutory audits (such as federal and state student financial aid compliance audits) for 2012; and

• providing other audit services in connection with statutory and regulatory filings or engagements for our 2012 fiscal year.

Those services were rendered in both the 2012 and 2013 calendar years.

(3) Represents fees for services rendered in the period indicated that were related to the performance of the audit or review of our financial statements and were not reported as Audit services. The nature of those services included, without limitation:

• financial statement audits of our employee benefit plans; and

• assistance with respect to accounting, financial reporting and disclosure treatment of transactions or events, including:

• consultations with us;

• assistance with understanding and implementing related final and proposed rules, guidance, standards and interpretations from accounting rulemakers, the SEC and the NYSE;

• helping us assess the actual or potential impact of final or proposed rules, guidance, standards and interpretations from accounting rulemakers, the SEC and the NYSE;

• in 2012, review of SEC comment letters and responses;

• in 2012, due diligence procedures pertaining to the financial and accounting implications of a potential business acquisition;

• in 2013, review of our Registration Statement on Form S-8; and

• in 2013, responding to a subpoena from the SEC related to the SEC’s investigation of us.

(4) Represents fees for tax services rendered in the period indicated. The nature of those services included, without limitation:

• the preparation and/or review of original and amended income, franchise and other tax returns with respect to international, federal, state and local tax authorities;

• assistance with tax audits and appeals before federal, state and local tax authorities;

• tax advice and assistance related to employee benefit plans and statutory, regulatory or administrative developments, and tax credits and refund opportunities; and

• in 2012, due diligence procedures pertaining to the tax implications of a potential business acquisition.

(5) Represents fees for a subscription to PWC’s accounting research tool.

Audit and Non-Audit Services Pre-Approval Policy

The Audit Committee has adopted a policy that sets forth the procedures and conditions pursuant to which services proposed to be performed by our independent registered public accounting firm may be pre-approved by the Audit Committee. Under the

-141-

Audit Committee’s policy, unless a type of service has received pre-approval by the Audit Committee without consideration of specific case-by-case services (“general pre-approval”), it requires specific pre-approval by the Audit Committee if it is to be provided by our independent registered public accounting firm.

For both types of pre-approval, the Audit Committee considers whether such services are consistent with the SEC’s rules on auditor independence. The Audit Committee also considers whether our independent registered public accounting firm is best positioned to provide the most effective and efficient service, for reasons such as its familiarity with our business, people, culture, accounting systems, risk profile and other factors, and whether the service might enhance our ability to manage or control risk or improve audit quality. All such factors are considered as a whole, and no one factor is necessarily determinative.

In deciding whether to pre-approve any audit and non-audit services, the Audit Committee is also mindful of the relationship between fees for audit and non-audit services and may determine, for each fiscal year, the appropriate ratio between the total amount of fees for audit, audit-related and tax services and the total amount of fees for certain permissible non-audit services classified as all other services.

The term of any general pre-approval is 12 months from the date of pre-approval, unless the Audit Committee considers a different period and states otherwise and except that the pre-approvals related to an audit of our annual consolidated financial statements will last until that audit is completed. The Audit Committee annually reviews and pre-approves the services that may be provided by our independent registered public accounting firm without obtaining specific pre-approval. The Audit Committee may add to or subtract from the list of general pre-approved services from time to time, based on subsequent determinations.

The policy does not delegate the Audit Committee’s responsibilities to pre-approve services performed by our independent registered public accounting firm to our management. The Audit Committee may delegate either type of pre-approval authority to one or more of its members. The member to whom such authority is delegated must report, for informational purposes only, any pre-approval decisions to the Audit Committee at its next scheduled meeting. The Audit Committee has delegated both types of pre-approval authority to the Chairperson of the Audit Committee with respect to any requests for services to be performed by our independent registered public accounting firm that cannot be delayed without inconvenience until the next scheduled Audit Committee meeting.

Pre-approval fee levels or budgeted amounts for all services to be provided by our independent registered public accounting firm are established annually by the Audit Committee. Any proposed services exceeding those levels or amounts require specific pre-approval by the Audit Committee.

All requests or applications for services to be provided by our independent registered public accounting firm that do not require specific approval by the Audit Committee are submitted to our Chief Financial Officer and must include a detailed description of the services to be rendered. Our Chief Financial Officer will determine whether such services are included within the list of services that have received the general pre-approval of the Audit Committee.

Requests or applications to provide services that require specific approval by the Audit Committee are submitted to the Audit Committee by both our independent registered public accounting firm and Chief Financial Officer.

All of the fees reported in the table above as “Audit,” “Audit-Related,” “Tax” and “All Other” services rendered by PWC in our 2013 and 2012 fiscal years were pre-approved by the Audit Committee.

The annual audit services engagement terms and fees are subject to the specific pre-approval of the Audit Committee. Audit services include all services performed to comply with the standards of the Public Company Accounting Oversight Board, including, without limitation, the annual financial statement audit (including required quarterly reviews) and other procedures required to be performed by our independent registered public accounting firm to be able to form an opinion on our consolidated financial statements. These other procedures include information systems and procedural reviews and testing performed in order to understand and place reliance on the systems of internal control, and consultations relating to the audit or quarterly review. Audit services also include services performed in connection with the independent registered public accounting firm’s report on internal control over financial reporting. The Audit Committee monitors the audit services engagement as necessary and also approves, if necessary, any changes in terms, conditions and fees resulting from changes in audit scope, our structure or other items.

In addition to the annual audit services engagement approved by the Audit Committee, the Audit Committee may grant general pre-approval of other audit services, which are those services that our independent registered public accounting firm reasonably can provide. Other audit services include:

• statutory audits (such as federal and state student financial aid compliance audits) or financial audits for our subsidiaries or affiliates;

• services associated with SEC registration statements, periodic reports and other documents filed with the SEC or other documents issued in connection with securities offerings; and

• consultations with our management concerning accounting, financial reporting or treatment of transactions or events.

Any audit services that the Audit Committee generally pre-approves are reflected in the minutes of the Audit Committee meeting at which the services were pre-approved. All other audit services not reflected in the Audit Committee’s meeting minutes must be specifically approved by the Audit Committee before they are performed.

-142-

Audit-related services are assurance and related services that are reasonably related to the performance of the audit or review of our financial statements or that are traditionally performed by the independent registered public accounting firm. Since the Audit Committee believes that the provision of audit-related services does not impair the independence of the auditor and is consistent with the SEC’s rules on auditor independence, the Audit Committee may grant general pre-approval to audit-related services. Audit-related services include, among others:

• due diligence services pertaining to potential business acquisitions or dispositions;

• consultations concerning accounting, financial reporting or disclosure treatment of transactions or events not classified as “audit services”;

• assistance with understanding and implementing new and proposed accounting and financial reporting guidance from rulemaking authorities;

• financial statement audits of employee benefit plans;

• assistance with assessing the actual or potential impact of final or proposed rules, standards or interpretations from accounting authorities;

• agreed-upon or expanded audit procedures related to accounting and/or billing records required to respond to or comply with financial, accounting or regulatory reporting matters;

• attest services not required by statute or regulation;

• information systems reviews not performed in connection with the financial statement audit;

• subsidiary or equity investee audits not required by statute or regulation that are incremental to the audit of the consolidated financial statements;

• review of the effectiveness of the internal audit function;

• general assistance with understanding and implementing requirements of SEC rules and stock exchange listing standards; and

• consultations and audits in connection with acquisitions.

Any audit-related services that the Audit Committee generally pre-approves are reflected in the minutes of the Audit Committee meeting at which the services were pre-approved. All other audit-related services not reflected in the Audit Committee’s meeting minutes must be specifically approved by the Audit Committee before they are performed.

Tax services include tax compliance, planning and advice, as well as tax only valuation services. Since the Audit Committee believes that the provision of tax services does not impair our independent registered public accounting firm’s independence, and the SEC has stated that the independent registered public accounting firm may provide such services, the Audit Committee believes it may grant general pre-approval to tax services. The Audit Committee will not permit the retention of the independent registered public accounting firm in connection with a transaction initially recommended by our independent registered public accounting firm, the sole business purpose of which may be tax avoidance and the tax treatment of which may not be supported in the IRC and related regulations. The Audit Committee will consult with our Chief Financial Officer or outside counsel to determine that the tax planning and reporting positions are consistent with the policy.

Any tax services that the Audit Committee generally pre-approves are reflected in the minutes of the Audit Committee meeting at which the services were pre-approved. All tax services not reflected in the Audit Committee’s meeting minutes must be specifically approved by the Audit Committee before they are performed.

The Audit Committee believes, based on the SEC’s rules prohibiting the independent registered public accounting firm from providing specific non-audit services, that other types of non-audit services are permitted. Accordingly, the Audit Committee believes it may grant general pre-approval to those permissible non-audit services classified as all other services that it believes are routine and recurring services, would not impair the independence of our independent registered public accounting firm and are consistent with the SEC’s rules on auditor independence.

Any other services that the Audit Committee generally pre-approves are reflected in the minutes of the Audit Committee meeting at which the services were pre-approved. All other services not reflected in the Audit Committee’s meeting minutes must be specifically approved by the Audit Committee before they are performed.

-143-

PART IV

Item 15. Exhibits and Financial Statement Schedules.

1. Financial Statements:

	Page No. In This Filing
Management’s Report on Internal Control Over Financial Reporting		F-1
Report of Independent Registered Public Accounting Firm		F-2
Consolidated Balance Sheets as of December 31, 2013 and 2012		F-4
Consolidated Statements of Income for the years ended December 31, 2013, 2012 and 2011		F-5
Consolidated Statements of Comprehensive Income for the years ended December 31, 2013, 2012 and 2011		F-6
Consolidated Statements of Cash Flows for the years ended December 31, 2013, 2012 and 2011		F-7
Consolidated Statements of Shareholders’ Equity for the years ended December 31, 2013, 2012 and 2011		F-8
Notes to Consolidated Financial Statements		F-9

2. Financial Statement Schedules:

Schedule II – Valuation and Qualifying Accounts of the Company for the years ended December 31, 2013, 2012 and 2011 appear on page F-56 of this Annual Report.

3. Quarterly Financial Results for 2013 and 2012 (unaudited) appear on page F-57 of this Annual Report.

4. Exhibits:

A list of exhibits required to be filed as part of this report is set forth in the Index to Exhibits appearing on pages S-2 through S-7 of this Annual Report, which immediately precedes such exhibits, and is incorporated herein by reference.

-144-

Management’s Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over our financial reporting (“ICFR”), as defined in Rules 13a-15(f) and 15d-15(f) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Our ICFR is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:

• pertain to the maintenance of our records that in reasonable detail accurately and fairly reflect our transactions and asset dispositions;

• provide reasonable assurance that our transactions are recorded as necessary to permit the preparation of our financial statements in accordance with generally accepted accounting principles;

• provide reasonable assurance that our receipts and expenditures are being made only in accordance with authorizations of our management and Board of Directors (as appropriate); and

• provide reasonable assurance regarding the prevention or timely detection of any unauthorized acquisition, use or disposition of our assets that could have a material effect on our financial statements.

Due to its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. In addition, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Under the supervision and with the participation of our principal executive officer and principal financial officer, our management assessed the effectiveness of our ICFR as of December 31, 2013. In making this assessment, our management used the criteria described in the 1992 Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our assessment using these criteria, management concluded that we did not maintain effective ICFR as of December 31, 2013 because of the material weaknesses described below.

A material weakness is a deficiency, or a combination of deficiencies, in ICFR, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.

Our management has concluded that there were four material weaknesses in our ICFR as of December 31, 2013. Specifically, we did not maintain effective internal controls related to:

• the assessment of events that could affect the determination of whether we are the primary beneficiary of variable interest entities in which we hold a variable interest;

• the assessment of the completeness and accuracy of the data maintained by the servicer of the private education loans that are owned by a variable interest entity that we were required to consolidate;

• the review of assumptions and methodologies developed by third-party consultants to project guarantee obligations under the 2009 RSA; and

• the timely identification and communication of information relevant to the private education loan programs to those members of our management who are responsible for our financial reporting processes.

Our management determined that these material weaknesses resulted in adjustments to multiple line items on our financial statements during the preparation of our 2013 annual consolidated financial statements and restatement of our interim consolidated financial statements as of and for the quarterly periods ended March 31, 2013, June 30, 2013 and September 30, 2013 or could result in a material misstatement of our annual or interim consolidated financial statements that would not be prevented or detected on a timely basis. As a result, our management determined that each of these deficiencies constituted a material weakness in our ICFR as of December 31, 2013, and our ICFR was not effective as of that date.

        The control deficiency related to our assessment of events that could affect the determination of whether we are the primary beneficiary of a variable interest entity affected multiple line items in our financial statements. See Note 10 – Variable Interest Entities of the Notes to Consolidated Financial Statements for a discussion of the effect that consolidating a variable interest entity beginning February 28, 2013 had on our consolidated financial statements. The control deficiency related to our failure to maintain effective internal controls over the data maintained by the servicer of the private education loans could have resulted in misstatements of the fair value of the private education loans upon consolidation of the variable interest entity and the amount of the allowance for loan losses. The control deficiency related to our review of assumptions and methodologies developed by consultants to project guarantee obligations under the 2009 RSA resulted in adjustments to our loss related to loan program guarantees, other liabilities and related financial disclosures during the preparation of our 2013 consolidated financial statements. The control deficiency related to the identification and communication of information is considered to have contributed to the other identified material weaknesses, as relevant information related to the private loan programs was not provided timely to those individuals responsible for our financial reporting processes or our independent registered accountants.

Our management excluded the PEAKS Trust from our assessment of ICFR as of December 31, 2013, because beginning February 28, 2013, we became the primary beneficiary of the PEAKS Trust. The PEAKS Trust is a controlled variable interest entity whose assets and total revenues represented 11% and 1%, respectively, of the related consolidated financial statement amounts as of and for the year ended December 31, 2013.

The effectiveness of our ICFR as of December 31, 2013 has been audited by PricewaterhouseCoopers LLP, our independent registered public accounting firm, as stated in their accompanying report.

F - 1

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Shareholders of

ITT Educational Services, Inc.

In our opinion, the consolidated financial statements listed in the index appearing under Item 15(1) present fairly, in all material respects, the financial position of ITT Educational Services, Inc. and its subsidiaries at December 31, 2013 and 2012, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2013 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the index appearing under Item 15(2) presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. Also in our opinion, the Company did not maintain, in all material respects, effective internal control over financial reporting as of December 31, 2013, based on criteria established in Internal Control - Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) because material weaknesses in internal control over financial reporting related to (i) the application of consolidation accounting to variable interest entities, (ii) the assessment of the completeness and accuracy of student loan data underlying estimates made in the valuation of the PEAKS Trust student loan receivables, (iii) controls over the estimation and review of contingent loss estimates related to the guarantee obligation under the 2009 RSA , and (iv) the timely identification and communication of information relevant to the private student loan programs to those members of management responsible for the Company’s financial reporting processes existed as of that date. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis. The material weaknesses referred to above are described in the accompanying Management’s Report on Internal Control Over Financial Reporting. We considered these material weaknesses in determining the nature, timing, and extent of audit tests applied in our audit of the December 31, 2013 consolidated financial statements, and our opinion regarding the effectiveness of the Company’s internal control over financial reporting does not affect our opinion on those consolidated financial statements. The Company’s management is responsible for these financial statements and financial statement schedule, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in management’s report referred to above. Our responsibility is to express opinions on these financial statements, on the financial statement schedule, and on the Company’s internal control over financial reporting based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

F - 2

As discussed in Note 17 to the consolidated financial statements, the Company is subject to risks and uncertainties including litigation, governmental investigations and increasing liquidity pressures that could affect amounts reported in the Company’s financial statements in future periods.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

As described in Management’s Report on Internal Control Over Financial Reporting, management has excluded the PEAKS Trust from its assessment of internal control over financial reporting as of December 31, 2013, because beginning on February 28, 2013, the Company became the primary beneficiary of the PEAKS Trust. We have also excluded the PEAKS Trust from our audit of internal control over financial reporting. The PEAKS Trust is a controlled variable interest entity whose assets and total revenues represent 11% and 1%, respectively, of the related consolidated financial statement amounts as of and for the year ended December 31, 2013.

/s/ PricewaterhouseCoopers LLP

PricewaterhouseCoopers LLP

Indianapolis, Indiana

October 15, 2014

F - 3

ITT EDUCATIONAL SERVICES, INC.

CONSOLIDATED BALANCE SHEETS

(Dollars in thousands, except per share data)

	As of December 31,
	2013			2012
Assets
Current assets:
Cash and cash equivalents	$	215,771		$	243,465
Restricted cash		5,636			3,478
Accounts receivable, less allowance for doubtful accounts of $9,174 and $15,663		99,530			78,928
PEAKS Trust student loans, less allowance for loan losses of $0 and $0		7,730			0
Deferred income taxes		77,549			44,547
Prepaid expenses and other current assets		28,400			16,162
Total current assets		434,616			386,580
Property and equipment, net		168,509			189,890
PEAKS Trust student loans, excluding current portion, less allowance for loan losses of $29,349 and $0		76,479			0
Deferred income taxes		68,324			57,471
Other assets		58,923			41,263
Total assets	$	806,851		$	675,204
Liabilities and Shareholders’ Equity
Current liabilities:
Current portion of long-term debt	$	50,000		$	0
Current portion of PEAKS Trust senior debt		157,883			0
Accounts payable		58,021			63,304
Accrued compensation and benefits		18,107			21,023
Other current liabilities		42,136			106,796
Deferred revenue		147,630			135,900
Total current liabilities		473,777			327,023
Long-term debt		0			140,000
PEAKS Trust senior debt, excluding current portion		71,341			0
Other liabilities		146,087			82,416
Total liabilities		691,205			549,439
Commitments and contingent liabilities (Note 16)
Shareholders’ equity:
Preferred stock, $.01 par value, 5,000,000 shares authorized, none issued		0			0
Common stock, $.01 par value, 300,000,000 shares authorized, 37,068,904 issued		371			371
Capital surplus		200,040			197,113
Retained earnings		940,449			967,473
Accumulated other comprehensive income (loss)		3,146			(7,930	)
Treasury stock, 13,698,716 and 13,744,395 shares, at cost		(1,028,360	)		(1,031,262	)
Total shareholders’ equity		115,646			125,765
Total liabilities and shareholders’ equity	$	806,851		$	675,204

The accompanying notes are an integral part of the consolidated financial statements.

F - 4

ITT EDUCATIONAL SERVICES, INC.

CONSOLIDATED STATEMENTS OF INCOME

(Amounts in thousands, except per share data)

	Year Ended December 31,
	2013			2012			2011
Revenue	$	1,072,311		$	1,286,633		$	1,499,977
Costs and expenses:
Cost of educational services		486,353			538,350			553,065
Student services and administrative expenses		397,541			400,856			414,156
Asset impairment		0			15,166			0
Legal and other investigation costs		6,923			873			0
Loss related to loan program guarantees		90,964			101,025			23,500
Provision for PEAKS Trust student loan losses		29,349			0			0
Total costs and expenses		1,011,130			1,056,270			990,721
Operating income		61,181			230,363			509,256
(Loss) on consolidation of PEAKS Trust		(73,248	)		0			0
Interest income		108			1,348			2,902
Interest (expense)		(25,277	)		(3,723	)		(1,825	)
Income (loss) before provision for income taxes		(37,236	)		227,988			510,333
Provision for income taxes		(10,212	)		89,018			201,247
Net income (loss)	$	(27,024	)	$	138,970		$	309,086
Earnings (loss) per share:
Basic	$	(1.15	)	$	5.82		$	11.27
Diluted	$	(1.15	)	$	5.79		$	11.18
Weighted average shares outstanding:
Basic		23,412			23,880			27,429
Diluted		23,412			23,999			27,655

The accompanying notes are an integral part of the consolidated financial statements.

F - 5

ITT EDUCATIONAL SERVICES, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Dollars in thousands)

	Year Ended December 31,
	2013			2012			2011
Net income (loss)	$	(27,024	)	$	138,970		$	309,086
Other comprehensive income (loss), net of tax:
Net actuarial pension (loss) gain, net of income tax of $6,811, $242 and $3,709		10,755			379			(5,795	)
Net actuarial pension loss amortization, net of income tax of $790, $1,062 and $704		1,247			1,656			1,099
Prior service cost (credit) amortization, net of income tax of $604, $607 and $607		(951	)		(948	)		(948	)
Pension settlement (loss), net of income tax of $17, $309 and $470		25			483			734
Unrealized gains (losses) on available-for-sale securities, net of income tax of $0, $0 and $0		0			(21	)		(60	)
Other comprehensive income (loss), net of tax		11,076			1,549			(4,970	)
Comprehensive income (loss)	$	(15,948	)	$	140,519		$	304,116

The accompanying notes are an integral part of the consolidated financial statements.

F - 6

ITT EDUCATIONAL SERVICES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in thousands)

	Year Ended December 31,
	2013			2012			2011
Cash flows from operating activities:
Net income (loss)	$	(27,024	)	$	138,970		$	309,086
Adjustments to reconcile net income to net cash flows from operating activities:
Depreciation and amortization		27,252			29,350			27,886
Provision for doubtful accounts		67,640			56,818			35,655
Deferred income taxes		(54,425	)		(59,999	)		(8,991	)
Excess tax benefit from stock option exercises		0			(1,382	)		(1,166	)
Stock-based compensation expense		11,638			16,658			17,074
Settlement cost		(46,000	)		21,750			0
Asset impairment		0			15,166			0
Accretion of discount on PEAKS Trust student loans		(12,996	)		0			0
Accretion of discount on PEAKS Trust senior debt		4,926			0			0
Provision for PEAKS Trust student loan losses		29,349			0			0
Loss on consolidation of PEAKS Trust		73,248			0			0
Other		315			6,992			(1,936	)
Changes in operating assets and liabilities, net of acquisition:
Restricted cash		(455	)		3,794			(942	)
Accounts receivable		(87,225	)		(87,138	)		(17,004	)
PEAKS Trust student loans		11,554			0			0
Accounts payable		(5,574	)		(15,572	)		10,956
Other operating assets and liabilities		74,203			72,857			35,964
Deferred revenue		11,299			(90,643	)		(17,819	)
Net cash flows from operating activities		77,725			107,621			388,763
Cash flows from investing activities:
Facility expenditures and land purchases		(679	)		(1,046	)		(4,053	)
Capital expenditures, net		(4,468	)		(17,204	)		(26,847	)
Acquisition of company, net of cash acquired		(7,150	)		0			0
Proceeds from sales and maturities of investments and repayment of notes		461			217,301			337,032
Purchase of investments and note advances		(1,242	)		(75,887	)		(352,195	)
Net cash flows from investing activities		(13,078	)		123,164			(46,063	)
Cash flows from financing activities:
Excess tax benefit from stock option exercises		0			1,382			1,166
Proceeds from exercise of stock options		0			8,345			5,599
Debt issue costs		0			(1,525	)		0
Proceeds from revolving borrowings		0			175,000			0
Repayment of revolving borrowings		(90,000	)		(185,000	)		0
Repayment of PEAKS Trust senior debt		(1,946	)		0			0
Repurchase of common stock and shares tendered for taxes		(395	)		(209,371	)		(283,320	)
Net cash flows from financing activities		(92,341	)		(211,169	)		(276,555	)
Net change in cash and cash equivalents		(27,694	)		19,616			66,145
Cash and cash equivalents at beginning of period		243,465			223,849			157,704
Cash and cash equivalents at end of period	$	215,771		$	243,465		$	223,849
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Income taxes (net of refunds)	$	61,131		$	139,919		$	196,387
Interest	$	3,310		$	3,047		$	1,842
Non-cash operating activities:
Consolidation of PEAKS Trust assets	$	113,819			0			0
Consolidation of PEAKS Trust liabilities		471			0			0
Non-cash financing activities:
Issuance of treasury stock for Directors’ compensation	$	0		$	37		$	30
Consolidation of PEAKS Trust senior debt		226,096			0			0

The accompanying notes are an integral part of the consolidated financial statements.

F - 7

ITT EDUCATIONAL SERVICES, INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(Dollars and shares in thousands)

	Common Stock				Capital Surplus			Retained Earnings			Accumulated Other Comprehensive			Common Stock in Treasury
	Shares		Amount								Income (Loss)			Shares			Amount			Total
Balance as of December 31, 2010		37,069	$	371	$	170,966		$	526,619		($	4,509	)		(7,076	)	($	566,405	)	$	127,042
Net income									309,086												309,086
Other comprehensive (loss), net of income tax												(4,970	)								(4,970	)
Equity award vesting and exercises						(2,397	)		(2,359	)					155			10,355			5,599
Tax benefit from equity awards						1,190															1,190
Stock-based compensation						14,448															14,448
Common shares repurchased															(4,040	)		(282,701	)		(282,701	)
Issuance of shares for Directors’ compensation									1						1			29			30
Shares tendered for taxes															(9	)		(619	)		(619	)
Balance as of December 31, 2011		37,069		371		184,207			833,347			(9,479	)		(10,969	)		(839,341	)		169,105
Net income									138,970												138,970
Other comprehensive income, net of income tax												1,549									1,549
Equity award vesting and exercises						(4,224	)		(4,843	)					272			17,412			8,345
Tax benefit from equity awards						918															918
Stock-based compensation						16,212															16,212
Common shares repurchased															(3,026	)		(207,918	)		(207,918	)
Issuance of shares for Directors’ compensation									(1	)					1			38			37
Shares tendered for taxes															(22	)		(1,453	)		(1,453	)
Balance as of December 31, 2012		37,069		371		197,113			967,473			(7,930	)		(13,744	)		(1,031,262	)		125,765
Net income (loss)									(27,024	)											(27,024	)
Other comprehensive income, net of income tax												11,076									11,076
Equity award vesting and exercises						(3,297	)								68			3,297			0
Tax benefit from equity awards						(5,414	)														(5,414	)
Stock-based compensation						11,638															11,638
Shares tendered for taxes															(23	)		(395	)		(395	)
Balance as of December 31, 2013		37,069	$	371	$	200,040		$	940,449		$	3,146			(13,699	)	($	1,028,360	)	$	115,646

The accompanying notes are an integral part of the consolidated financial statements.

F - 8

ITT EDUCATIONAL SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data and unless otherwise stated)

1. Business and Significant Accounting Policies

Business. ITT Educational Services, Inc. is a leading proprietary provider of postsecondary degree programs in the United States based on revenue and student enrollment. References in these Notes to “we”, “us” and “our” refer to ITT Educational Services, Inc., its wholly-owned subsidiaries and the variable interest entity (“VIE”) of which it is the primary beneficiary, unless the context requires or indicates otherwise. As of December 31, 2013, we were offering:

• master, bachelor and associate degree programs to approximately 57,000 students at ITT Technical Institute and Daniel Webster College locations; and

• short-term information technology and business learning solutions for individuals.

In addition, we offered one or more of our online education programs to students who are located in all 50 states. As of December 31, 2013, we had 149 college locations (including 147 campuses and two learning sites) in 39 states and one training facility. All of our college locations are authorized by the applicable education authorities of the states in which they operate and are accredited by an accrediting commission recognized by the U.S. Department of Education (“ED”). We have provided career-oriented education programs since 1969 under the “ITT Technical Institute” name and since June 2009 under the “Daniel Webster College” name. In August 2013, we acquired all of the membership interests of Cable Holdings, LLC (“Cable Holdings”), an education company that offers short-term information technology and business learning solutions for individuals. See Note 4 – Acquisitions, for additional discussion of the acquisition of Cable Holdings. Our corporate headquarters are located in Carmel, Indiana.

Basis of Presentation. The accompanying consolidated financial statements include the accounts of our wholly-owned subsidiaries and the VIE that we consolidate, and have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) and pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”). Arrangements where we may have a variable interest in another party are evaluated in accordance with the provisions of Financial Accounting Standards Board (“FASB”) Accounting Standards Codification ^TM (“ASC” or “Codification”) 810, “Consolidation” (“ASC 810”), to determine whether we would be required to consolidate the other party in our consolidated financial statements. See Note 10 – Variable Interest Entities, for a further discussion of those entities in which we held a variable interest and the consolidation of one of those entities in our consolidated financial statements as of December 31, 2013. All significant intercompany balances and transactions are eliminated upon consolidation.

Use of Estimates. The preparation of these consolidated financial statements, in accordance with GAAP, includes estimates and assumptions that are determined by our management. Actual results could differ materially from the estimates. Significant accounting estimates and assumptions are used for, but not limited to:

• the allowance for doubtful accounts;

• useful lives of tangible and intangible assets;

• asset impairments;

• fair value of the assets and liabilities of the PEAKS Trust upon consolidation;

• the provision for PEAKS Trust student loan losses;

• self insurance;

• pension liabilities;

• stock-based compensation;

• guarantees;

• unrecognized tax benefits; and

• litigation exposures.

Cash Equivalents. Highly liquid investments purchased with an original maturity of three months or less are considered cash equivalents.

Restricted Cash. The funds from the federal student financial aid programs under Title IV (“Title IV Programs”) of the Higher Education Act of 1965, as amended (“HEA”), and certain other monies transferred to us by electronic funds transfer, are subject to holding restrictions before they can be drawn into our cash account. The funds subject to these holding periods are identified as restricted cash until they are applied to the students’ accounts. In addition, funds held for students from Title IV Programs that result in a credit balance on a student’s account are also reflected as restricted cash on our Consolidated Balance Sheet. The amount of these funds included in restricted cash on our Consolidated Balance Sheet as of December 31, 2013 was $2,433.

Beginning on February 28, 2013, we consolidated a VIE in our consolidated financial statements. Funds held by this VIE are classified as restricted cash on our Consolidated Balance Sheet, because those funds can only be used to satisfy the obligations of the VIE. Funds held by the VIE included in restricted cash on our Consolidated Balance Sheet as of December 31, 2013 were $2,593.

F - 9

We also maintain an escrow account for a guarantee obligation to an unaffiliated third party under a private education loan program for our students. The funds in this escrow account are considered restricted cash and classified as other assets. The balance in this escrow account was approximately $8,626 as of December 31, 2013 and approximately $8,622 as of December 31, 2012.

Investments. We classify our investments in marketable securities as available-for-sale or held-to-maturity depending on our investment intentions with regard to those securities on the date of acquisition. Investments classified as available-for-sale are recorded at their market value. Investments are classified as either current or non-current based on the maturity date of each security. We did not hold any investments in marketable securities as of December 31, 2013 or December 31, 2012.

The cost of securities sold is based on the specific identification method.

Accounts Receivable and Allowance for Doubtful Accounts. We extend unsecured credit to our institutions’ students for tuition and fees, and we record a receivable for the tuition and fees earned in excess of the payment received from or on behalf of a student. The average student receivable balance is insignificant. We record an allowance for doubtful accounts with respect to accounts receivable based on the students’ credit profiles and our historical collection experience related to amounts owed by our students with similar credit profiles. If our collection trends were to differ significantly from our historical collection experience, we would make a corresponding adjustment to our allowance for doubtful accounts.

When a student is no longer enrolled in an education program at one of our campuses, we increase the allowance for doubtful accounts related to the former student’s receivable balance to reflect the amount we estimate will not be collected. The amount that we estimate will not be collected is based on a review of the historical collection experience for our campuses, adjusted as needed to reflect other facts and circumstances. We review the collection activity after a student withdraws or graduates from an education program and write off the accounts receivable, if we conclude that collection of the balance is not probable.

PEAKS Trust Student Loans. Beginning on February 28, 2013, we consolidated the VIE, which is a trust (the “PEAKS Trust”) that purchased, owns and collects private education loans (the “PEAKS Trust Student Loans”) made under the PEAKS Private Student Loan Program (the “PEAKS Program”), in our consolidated financial statements (the “Consolidation”). Certain of the PEAKS Trust Student Loans had evidence of credit deterioration since the date those loans were originated and, therefore, we determined that, at the date of the Consolidation, it was probable that all contractually required payments under those loans would not be collected. We recorded those loans at fair value at the date of the Consolidation. We also recorded at fair value PEAKS Trust Student Loans that did not individually have evidence of deteriorated credit quality at the date of the Consolidation, because we determined that the application of an expected cash flow model provided the most reasonable presentation and this accounting treatment was consistent with the American Institute of Certified Public Accountants’ (the “AICPA”) December 18, 2009 Confirmation Letter (the “Confirmation Letter”). No allowance for loan losses was recorded at the date of the Consolidation, because all of the PEAKS Trust Student Loans were recorded at fair value and future credit losses are considered in the estimate of fair value. Cash flows from PEAKS Trust Student Loans expected to be collected within the next 12 months have been classified as current in our consolidated balance sheet. The remaining balance is classified as non-current.

We aggregated the individual PEAKS Trust Student Loans into 24 separate pools of loans, based on common risk characteristics of the individual loans, which included:

• the fiscal quarter in which the PEAKS Trust Student Loan was originated; and

• the consumer credit score of the borrower.

Loans that did not have evidence of deteriorated credit quality were not aggregated in the same pools with loans that had evidence of deteriorated credit quality. The same aggregation criteria, however, were used to determine those loan pools. Each loan pool is accounted for as a single asset with a single composite interest rate and an aggregate expectation of cash flows.

On a quarterly basis, we estimate the total principal and interest expected to be collected over the remaining life of each loan pool. These estimates include assumptions regarding default rates, forbearances and other factors that reflect then-current market conditions. If a decrease in the expected cash flows of a loan pool is probable and would cause the expected cash flows to be less than the expected cash flows at the date of the Consolidation or the end of the previous fiscal quarter, whichever is later, we would record the impairment as:

• a provision for PEAKS Trust student loan losses in our Consolidated Statement of Income; and

• an increase in the allowance for loan losses on our Consolidated Balance Sheet.

The provision for PEAKS Trust student loan losses represents the increase in the allowance for loan losses that occurred during the period. The allowance for loan losses is the difference between the carrying value and the total present value of the expected principal and interest collections of each loan pool, discounted by the loan pool’s

F - 10

effective interest rate at the date of the Consolidation or the end of the previous fiscal quarter, whichever is later. If a significant increase in the expected cash flows of a loan pool is probable and would cause the expected cash flows to be greater than the expected cash flows at the date of the Consolidation or the end of the previous fiscal quarter, whichever is later, we would:

• first reverse any allowance for loan losses with respect to that loan pool that was previously recorded on our Consolidated Balance Sheet, up to the amount of that allowance; and

• record any remaining increase prospectively as a yield adjustment over the remaining estimated lives of the loans in the loan pool.

The impact of prepayments, changes in variable interest rates and any other changes in the timing of the expected cash flows of a loan pool are recognized prospectively as adjustments to interest income.

The impact of modifications made to loans in a loan pool is incorporated into our quarterly assessment of whether a significant change in the expected cash flows of the loan pool is probable or has occurred. We consider the historical loss experience associated with the PEAKS Trust Student Loans in estimating the future probabilities of default for all of the outstanding PEAKS Trust Student Loans.

The excess of any cash flows expected to be collected with respect to a loan pool of the PEAKS Trust Student Loans over the carrying value of the loan pool is referred to as the accretable yield. The accretable yield is not reported on our Consolidated Balance Sheets, but it is accreted and included as interest income at a level rate of return over the remaining estimated life of the loan pool. If we determine that the timing and/or amounts of expected cash flows with respect to a loan pool are not reasonably estimable, no interest income would be accreted and the loans in that loan pool would be reported as nonaccrual loans. We recognize the accretable yield of the PEAKS Trust Student Loans as interest income, because the timing and the amounts of the expected cash flows are reasonably estimable.

If a PEAKS Trust Student Loan is paid in full or charged-off, that loan is removed from the loan pool. If the amount of the proceeds received for that loan, if any, is less than the unpaid principal balance of the loan, the difference is first applied against the loan pool’s nonaccretable difference for principal losses (i.e., the lifetime credit loss estimate established at the date of the Consolidation). If the nonaccretable difference for principal losses with respect to a loan pool has been fully depleted, any unpaid loan principal balance in excess of the proceeds received for the loan is charged-off against the loan pool’s allowance for loan losses. We do not recognize charge-offs of individual PEAKS Trust Student Loans when those loans reach certain stages of delinquency, because those loans are accounted for at a loan pool level.

If any portion of a PEAKS Trust Student Loan that had previously been charged-off is recovered, the amount collected increases the applicable loan pool’s nonaccretable difference. If the nonaccretable difference with respect to the applicable loan pool has been fully depleted, the amount collected increases that loan pool’s allowance for loan losses.

Property and Equipment. Property and equipment is recorded on our consolidated financial statements at cost, less accumulated depreciation and amortization. Maintenance and repairs are expensed as incurred. Expenditures that extend the useful lives of our assets are capitalized.

Developed or purchased software is capitalized in accordance with ASC 350, “Intangibles – Goodwill and Other.” Facility construction costs are capitalized as incurred, with depreciation commencing when the facility is placed in service.

Provisions for depreciation and amortization of property and equipment have generally been made using the straight-line method over the following ranges of useful lives:

Type of Property and Equipment	Estimated Useful Life
Furniture and equipment	3 to 10 years
Leasehold, building and land improvements	3 to 14 years
Buildings	20 to 40 years

We amortize leasehold improvements using the straight-line method over the shorter of the life of the improvement or the term of the underlying lease. Land is not depreciated.

Asset Impairment. We regularly review our long-lived assets (which are primarily property and equipment) and notes receivable for impairment whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable. We evaluate each note receivable individually for impairment.

If we determine that the carrying amount of a long-lived asset exceeds the total amount of the estimated undiscounted future cash flows from that asset, we would determine the fair value of that asset. If the fair value is less than the net book value of the long-lived asset, we recognize an impairment loss in the amount of the difference. We base our impairment analyses of long-lived assets on our current business strategy, expected growth rates and estimates of future economic and regulatory conditions.

F - 11

We consider a note receivable to be impaired when, based on current information or events, it is probable that we will be unable to collect all amounts of principal and interest owed on the underlying note according to the terms of the note. If the present value of the expected future cash flows from the note receivable discounted at the underlying note’s effective interest rate is less than the carrying value of the underlying note, we recognize an impairment loss in the amount of the difference.

Insurance Liabilities. We record liabilities and related expenses for medical, workers compensation and other insurance in accordance with the contractual terms of the insurance policies. We record the total liabilities that are estimable and probable as of the reporting date for our insurance liabilities that we self-insure. The accounting for our self-insured arrangements involves estimates and judgments to determine the liability to be recorded for reported claims and claims incurred but not reported. We consider our historical experience in determining the appropriate insurance reserves to record. If our current insurance claim trends were to differ significantly from our historic claim experience, however, we would make a corresponding adjustment to our insurance reserves.

Contingent Liabilities. We are subject to various claims and contingencies in the ordinary course of our business, including those related to litigation, government investigations, business transactions, guarantee obligations and employee-related matters, among others. When we are aware of a claim or potential claim, we assess the likelihood of any loss or exposure. If it is probable that a loss will result and the amount of the loss can be reasonably estimated, we record a liability for the loss. The liability recorded includes probable and estimable legal costs associated with the claim or potential claim. If the loss is not probable or the amount of the loss cannot be reasonably estimated, we disclose the claim if the likelihood of a potential loss is reasonably possible and the amount involved is material.

We determine the amount of our contingent liabilities related to our guarantee obligations by estimating the expected payments to be made under the guarantee and the amount that we expect to be repaid to us. We also consider the payment options available to us. To the extent that we project that we will have sufficient funds available to discharge our guarantee obligations for the outstanding balance of those private education loans that have been charged off at the time that they default, we incorporate that assumption into our estimate of the contingent liability. If we do not believe that we will have sufficient funds available, we assume that we will make monthly payments to satisfy our guarantee obligations as allowed under the applicable agreements. We discount the amount of those expected future monthly payments at a risk-free rate of interest. Making payments for the full amount of the charged-off loans at the time that they default results in us paying a lesser amount than we otherwise would have been required to pay under our guarantee obligations in future periods and, therefore, results in an estimated contingent liability that is less than if we had assumed we would make monthly payments in the future.

We discount the amounts that we expect will be repaid to us to reflect a risk-free rate of interest. The difference between the amount of the guarantee payments that we expect to make and the discounted amount that we expect will be repaid to us is included in our estimate of the amount of our contingent liability related to our guarantee obligations.

Debt. The PEAKS Trust issued senior debt in the initial aggregate principal amount of $300,000 (the “PEAKS Senior Debt”). In accordance with ASC 810, we included the PEAKS Senior Debt on our consolidated balance sheet at its fair value as of February 28, 2013, the date of the Consolidation. The difference between the fair value of the PEAKS Senior Debt and its outstanding aggregate principal balance at the date of the Consolidation was recorded as an accrued discount on our consolidated balance sheet at the date of the Consolidation. The accrued discount will be recognized in interest expense at a level rate of return over the life of the PEAKS Senior Debt.

Treasury Stock. Repurchases of outstanding shares of our common stock are recorded at cost. Treasury stock issued in fulfillment of stock-based compensation awards or other obligations is accounted for under the last in, first out method. We record “losses” from the sale of treasury stock that exceed previous net “gains” from the sale of treasury stock as a charge to retained earnings.

Recognition of Revenue. Tuition revenue is recorded on a straight-line basis over the length of the applicable course to the extent that we consider the collectability of that revenue to be reasonably assured. If a student withdraws from an institution, the standards of most state education authorities that regulate our institutions, the accrediting commissions that accredit our institutions and our own internal policy limit a student’s obligation for tuition and fees to the institution depending on when a student withdraws during an academic term (“Refund Policies”). The terms of the Refund Policies vary by state, and the limitations imposed by the Refund Policies are generally based on the portion of the academic term that has elapsed at the time the student withdraws. Generally, the greater the portion of the academic term that has elapsed at the time the student withdraws, the greater the student’s obligation is to the institution for the tuition and fees related to that academic term. We record revenue net of any refunds that result from any applicable Refund Policy. On an individual student basis, tuition earned in excess of cash received is recorded as accounts receivable, and cash received in excess of tuition earned is recorded as deferred revenue.

F - 12

We do not charge a separate fee for textbooks that students use in their education programs. We record the cost of these textbooks in prepaid expenses and other current assets and amortize the cost of textbooks on a straight-line basis over the applicable course length. Tool kit sales, and the related cost, are recognized when the student receives the tool kit. Academic fees (which are charged only one time to students on their first day of class attendance) are recognized as revenue on a straight-line basis over the average length of the education program. If a student withdraws from an institution, all unrecognized revenue relating to his or her fees, net of any refunds that result from any applicable Refund Policy, is recognized upon the student’s departure. An administrative fee is charged to a student and recognized as revenue when the student withdraws or graduates from an education program at an institution. We reassess the collectability of tuition revenue on a student-by-student basis throughout our revenue recognition period. We reassess the collectability of tuition revenue that we may earn based on new information and changes in the facts and circumstances relevant to a student’s ability to pay, which primarily include when a student withdraws from a program of study.

We report 12 weeks of tuition revenue in each of our four fiscal quarters. We standardized the number of weeks of revenue reported in each fiscal quarter, because the timing of student breaks in a calendar quarter can fluctuate from quarter to quarter each year. The total number of weeks of school during each year is 48.

We provide institutional scholarships and awards to our institutions’ students, which those students use to help reduce their educational expenses. Institutional scholarships and awards reduce the students’ tuition charges and are recorded as offsets to revenue in the period in which the tuition is earned.

Interest income on the PEAKS Trust Student Loans, which is the accretion of the accretable yield on the PEAKS Trust Student Loans, is included in revenue and recognized based on the effective interest method as described in Note 11 – PEAKS Trust Student Loans.

Advertising Costs. We expense all advertising costs as incurred. Advertising expense, which is included in Student services and administrative expenses in our Consolidated Statements of Income, was $177,791 in the year ended December 31, 2013, $174,009 in the year ended December 31, 2012 and $192,080 in the year ended December 2011.

Equity-Based Compensation. Stock-based compensation cost for our equity instruments exchanged for employee and director services is measured at the date of grant, based on the calculated fair value of the grant and is recognized as an expense on a straight-line basis over the period of time that the grantee must provide services to us before the stock-based compensation is fully vested. The vesting period is generally the period set forth in the agreement granting the stock-based compensation. Under the terms of our stock-based compensation plans, some grants immediately vest in full when the grantee’s employment or service terminates due to death or disability, and, for grants made prior to November 24, 2010, when he or she retires. As a result, in certain circumstances, the period of time that the grantee must provide services to us in order for that stock-based compensation to fully vest may be less than the vesting period set forth in the agreement granting the stock-based compensation. In these instances, compensation expense will be recognized over this shorter period.

We use a binomial option pricing model to determine the fair value of stock options granted and we use the market price of our common stock to determine the fair value of restricted stock and restricted stock units (“RSUs”) granted. The binomial option pricing model takes into account the variables defined below:

• “Volatility” is a statistical measure of the extent to which the stock price is expected to fluctuate during a period and combines our historical stock price volatility and the implied volatility as measured by actively traded stock options.

• “Expected life” is the weighted average period that those stock options are expected to remain outstanding, based on the historical patterns of our stock option exercises, as adjusted to reflect the current position-level demographics of the stock option grantees.

• “Risk-free interest rate” is based on interest rates for terms that are similar to the expected life of the stock options.

• “Dividend yield” is based on our historical and expected future dividend payment practices.

We generally issue shares of our common stock from treasury shares upon the exercise of stock options or vesting of RSUs. As of December 31, 2013, approximately 13.7 million shares of our common stock were held in treasury. Our Board of Directors has authorized us to repurchase outstanding shares of our common stock, but we do not expect to repurchase any outstanding shares of our common stock in 2014. See Note 8 – Stock Repurchases, for additional disclosures regarding our stock repurchases.

Operating Leases. We lease our non-owned facilities under operating lease agreements. Common provisions within our operating lease agreements include:

• renewal options, which can be exercised after the initial lease term;

• rent escalation clauses;

F - 13

• tenant improvement allowances; and

• rent holidays.

We record the rent expense associated with each operating lease agreement evenly over the term of the lease. The difference between the amount of rent expense recorded and the amount of rent actually paid is recorded as either prepaid or accrued rent, which is included in Other assets or Other liabilities, on our Consolidated Balance Sheets. We recognize a liability for the costs to terminate the lease of a leased facility when we cease using that leased facility.

Income Taxes. We account for income taxes using the asset and liability method, which requires the recognition of deferred tax assets and liabilities for expected future tax consequences of temporary differences that currently exist between the tax bases and financial reporting bases of our assets and liabilities.

We follow the guidance under ASC 740, “Income Taxes” (“ASC 740”), which prescribes a single, comprehensive model for how a company should recognize, measure, present and disclose in its financial statements uncertain tax positions that the company has taken or expects to take on its tax returns. This guidance requires us to evaluate whether it is more likely than not, based on the technical merits of a tax position, that the benefits resulting from the position will be realized by us.

We record interest and penalties related to unrecognized tax benefits in income tax expense.

2. Revision of 2011 and 2012 Financial Statements

We identified corrections to our 2011 and 2012 financial statements related to the recognition of revenue with respect to students who withdrew from a program of study. We also corrected the calculation of the contingent loss for the 2009 RSA in our 2012 financial statements.

We evaluated the cumulative impact of those items on prior periods under the guidance in ASC 250, “Accounting Changes and Error Corrections” (“ASC 250”), relating to SEC Staff Accounting Bulletin (“SAB”) No. 99, “Materiality.” We also evaluated the impact of correcting those items through an adjustment to our financial statements for the fiscal year ended December 31, 2013. We concluded, based on the guidance in ASC 250 relating to SAB No. 108, “Considering the Effects of Prior Year Misstatement when Quantifying Misstatements in Current Year Financial Statements,” that the correction of those items in our 2011 and 2012 fiscal year would not be material, but would be material if corrected out-of-period in our 2013 fiscal year. As a result, we have revised our audited consolidated financial statements as of and for the fiscal years ended December 31, 2012 and December 31, 2011 to reflect the correction of those items that should have been recognized in those periods. The amounts of the corrections as of December 31, 2012 and December 31, 2011 are shown in the Revisions column in the tables below.

Our revised Consolidated Balance Sheet as of December 31, 2012 and Consolidated Statements of Shareholders’ Equity as of December 31, 2012, 2011 and 2010 also reflect the correction of the classification of funds held for students from Title IV Programs that result in a credit balance on a student’s account as restricted and amounts related to the vesting of RSUs from retained earnings to capital surplus. The amounts of these corrections related to our Consolidated Balance Sheets were not material and are shown in the Revisions column in the tables below. The December 31, 2012 Consolidated Balance Sheet reflects an adjustment to increase retained earnings by $5,366 and decrease capital surplus by $5,366 for the cumulative effect of the classification of the vesting of RSUs as of December 31, 2011. We also increased retained earnings as of December 31, 2011 by $306 for the cumulative effect of the adjustment for the recognition of revenue with respect to students who withdrew from a program of study in prior years.

The December 31, 2010 amounts presented on our Consolidated Statement of Shareholders’ Equity reflect an adjustment to increase retained earnings by $2,969 and decrease capital surplus by $2,969 for the cumulative effect of the classification of the vesting of RSUs. We also decreased retained earnings as of December 31, 2010 in our Consolidated Statement of Shareholders’ Equity by $1,028 for the cumulative effect of the adjustments for the recognition of revenue with respect to students who withdrew from a program of study in prior periods.

We reclassified the following items in our Consolidated Statement of Income for the year ended December 31, 2012 to conform with the current year presentation:

• settlement cost was reclassified to loss related to loan program guarantees;

• loss related to private student loan programs was reclassified to loss related to loan program guarantees; and

• an asset impairment was reclassified from loss related to private student loan programs to a separate line item.

We also corrected the classification of losses related to loan program guarantees, which were previously recorded as reductions to revenue in our Consolidated Statements of Income for the years ended December 31, 2012 and December 31, 2011, to report those amounts on a separate line. The amount of those corrections is shown in the Revisions column in the tables below.

F - 14

The following table sets forth the effect of the revisions on the affected line items on our Consolidated Balance Sheet as of the date indicated.

	As of December 31, 2012
	As Previously Reported		Revisions			As Revised
Balance Sheet Data:
Cash and cash equivalents	$	246,342	$	(2,877	)	$	243,465
Restricted cash		601		2,877			3,478
Accounts receivable, net		77,313		1,615			78,928
Deferred income taxes (current)		44,547		0			44,547
Total current assets		384,965		1,615			386,580
Deferred income taxes		56,112		1,359			57,471
Total assets		672,230		2,974			675,204
Other current liabilities		86,722		20,074			106,796
Total current liabilities		306,949		20,074			327,023
Other liabilities		98,327		(15,911	)		82,416
Total liabilities		545,276		4,163			549,439
Capital surplus		206,703		(9,590	)		197,113
Retained earnings		959,072		8,401			967,473
Total shareholders’ equity		126,954		(1,189	)		125,765
Total liabilities and shareholders’ equity		672,230		2,974			675,204

The following table sets forth the effect of the revisions and reclassifications on the affected line items in our Consolidated Statement of Income for the year ended December 31, 2012.

	Year Ended December 31, 2012
	As Previously Reported		Revisions			Reclassifications			As Revised
Statement of Income Data:
Revenue	$	1,287,209	$	(576	)	$	0		$	1,286,633
Cost of educational services		539,223		0			(873	)		538,350
Student services and administrative expenses		422,345		(21,489	)		0			400,856
Settlement cost		21,750		0			(21,750	)		0
Asset impairment		0		0			15,166			15,166
Legal and other investigation costs		0		0			873			873
Loss related to private student loan programs		71,102		0			(71,102	)		0
Loss related to loan program guarantees		0		23,339			77,686			101,025
Total costs and expenses		1,054,420		1,850			0			1,056,270
Operating income		232,789		(2,426	)		0			230,363
Income before provision for income taxes		230,414		(2,426	)		0			227,988
Provision for income taxes		89,949		(931	)		0			89,018
Net income		140,465		(1,495	)		0			138,970
Earnings per share:
Basic	$	5.88							$	5.82
Diluted	$	5.85							$	5.79

F - 15

The following table sets forth the effect of the revisions on the affected line items in our Consolidated Statement of Income for the year ended December 31, 2011.

	Year Ended December 31, 2011
	As Previously Reported		Revisions			As Revised
Statement of Income Data:
Revenue	$	1,499,949	$	(28	)	$	1,499,977
Cost of educational services		553,065		0			553,065
Student services and administrative expenses		439,808		(25,652	)		414,156
Loss related to loan program guarantees		0		23,500			23,500
Total costs and expenses		992,873		(2,152	)		990,721
Operating income		507,076		2,180			509,256
Income before provision for income taxes		508,153		2,180			510,333
Provision for income taxes		200,401		846			201,247
Net income		307,752		1,334			309,086
Earnings per share:
Basic	$	11.22				$	11.27
Diluted	$	11.13				$	11.18

The following table sets forth the effect of the revisions on the affected line items in our Consolidated Statement of Comprehensive Income for the year ended December 31, 2012.

	Year Ended December 31, 2012
	As Previously Reported		Revisions			As Revised
Statement of Comprehensive Income Data:
Net income	$	140,465	$	(1,495	)	$	138,970
Comprehensive income		142,014		(1,495	)		140,519

The following table sets forth the effect of the revisions on the affected line items in our Consolidated Statement of Comprehensive Income for the year ended December 31, 2011.

	Year Ended December 31, 2011
	As Previously Reported		Revisions		As Revised
Statement of Comprehensive Income Data:
Net income	$	307,752	$	1,334	$	309,086
Comprehensive income		302,782		1,334		304,116

The following table sets forth the effect of the revisions on the affected line items in our Consolidated Statement of Cash Flows for the year ended December 31, 2012.

	Year Ended December 31, 2012
	As Previously Reported			Revisions			As Revised
Statement of Cash Flows Data:
Net income	$	140,465		$	(1,495	)	$	138,970
Provision for doubtful accounts		78,307			(21,489	)		56,818
Deferred income taxes		(58,640	)		(1,359	)		(59,999	)
Restricted cash		1,527			2,267			3,794
Accounts receivable		(107,514	)		20,376			(87,138	)
Other operating assets and liabilities		68,890			3,967			72,857
Net cash flows from operating activities		105,354			2,267			107,621

F - 16

The following table sets forth the effect of the revisions on the affected line items in our Consolidated Statement of Cash Flows for the year ended December 31, 2011.

	Year Ended December 31, 2011
	As Previously Reported			Revisions			As Revised
Statement of Cash Flows Data:
Net income	$	307,752		$	1,334		$	309,086
Provision for doubtful accounts		61,308			(25,653	)		35,655
Deferred income taxes		(8,991	)		0			(8,991	)
Restricted cash		(1,873	)		931			(942	)
Accounts receivable		(40,477	)		23,473			(17,004	)
Other operating assets and liabilities		35,118			846			35,964
Net cash flows from operating activities		387,832			931			388,763

The revisions had an effect on capital surplus, retained earnings and total shareholders’ equity as of December 31, 2012, December 31, 2011 and December 31, 2010, as reported in our Consolidated Statements of Shareholders’ Equity. The effect on capital surplus, retained earnings and total shareholders’ equity as of December 31, 2012 is shown in the Balance Sheet Data table above. The revisions resulted in the following changes to capital surplus, retained earnings and total shareholders’ equity as of December 31, 2011:

• a decrease in capital surplus of $5,366;

• an increase in retained earnings of $5,672; and

• an increase in total shareholders’ equity of $306.

The revisions resulted in the following changes to capital surplus, retained earnings and total shareholders’ equity as of December 31, 2010:

• a decrease in capital surplus of $2,969;

• an increase in retained earnings of $1,941; and

• a decrease in total shareholders’ equity of $1,028.

The revisions had an effect on net income for the years ended December 31, 2012 and December 31, 2011, as reported in our Consolidated Statements of Shareholders’ Equity. The effect of the revisions on net income for the years ended December 31, 2012 and December 31, 2011, as reported in our Consolidated Statements of Shareholders’ Equity, is shown in the Statement of Income Data tables above.

3. New Accounting Guidance

In May 2014, the FASB issued Accounting Standards Update (“ASU”) No. 2014-09, which is included in the Codification under ASC 606, “Revenue Recognition” (“ASC 606”). This guidance requires the recognition of revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration expected in exchange for those goods or services. This guidance will become effective for our interim and annual reporting periods beginning January 1, 2017. We have not completed our evaluation of the impact that this guidance may have on our consolidated financial statements.

In April 2014, the FASB issued ASU No. 2014-08, which is included in the Codification under ASC 205, “Presentation of Financial Statements” (“ASC 205”). This update changes the requirements for reporting discontinued operations and clarifies when disposals of groups of assets qualify for a discontinued operations presentation under ASC 205. This guidance will become effective for our interim and annual reporting periods beginning January 1, 2015, and will be applied to any transactions that meet those requirements beginning January 1, 2015.

In July 2013, the FASB issued ASU No. 2013-11, which is included in the Codification under ASC 740. This update provides guidance on the presentation of unrecognized tax benefits when net operating loss carryforwards, similar tax losses or tax credit carryforwards exist. This guidance became effective for our interim and annual reporting periods beginning January 1, 2014. The adoption of this guidance did not have a material impact on our consolidated financial statements.

In February 2013, the FASB issued ASU No. 2013-02, which is included in the Codification under ASC 220, “Other Comprehensive Income” (“ASC 220”). This update requires an entity to report the effect, by component, of significant reclassifications out of accumulated other comprehensive income on the respective line items in net income. This guidance was effective for our interim and annual reporting periods beginning January 1, 2013. The adoption of this guidance requires us to provide additional disclosures regarding the amounts reclassified out of accumulated other comprehensive income during a reporting period. We have included these disclosures in the footnotes to our consolidated financial statements. The adoption of this guidance did not have a material impact on our consolidated financial statements

F - 17

In October 2012, the FASB issued ASU No. 2012-04, which makes technical corrections, clarifications and limited-scope improvements to various topics throughout the Codification. The amendments in this ASU that do not have transition guidance were effective upon issuance, and the amendments that are subject to transition guidance were effective for our interim and annual reporting periods beginning January 1, 2013. The adoption of this guidance did not have a material impact on our consolidated financial statements.

In July 2012, the FASB issued ASU No. 2012-02, which is included in the Codification under ASC 350, “Intangibles – Goodwill and Other” (“ASC 350”). This update allows an entity to first assess qualitative factors to determine whether it must perform a quantitative impairment test. An entity would be required to calculate the fair value of an indefinite-lived intangible asset, if the entity determines, based on a qualitative assessment, that it is more likely than not that the indefinite-lived intangible asset is impaired. This guidance was effective for impairment tests performed for our interim and annual reporting periods beginning January 1, 2013. The adoption of this guidance did not have a material impact on our consolidated financial statements.

In December 2011, the FASB issued ASU No. 2011-11, which is included in the Codification under ASC 210, “Balance Sheet” (“ASC 210”). This update provides for enhanced disclosures to help users of financial statements evaluate the effect or potential effect of netting arrangements on an entity’s financial position. In January 2013, the FASB issued ASU No. 2013-01, which clarified the scope of the disclosures required under ASU No. 2011-11. Both of these updates were effective for our interim and annual reporting periods beginning January 1, 2013. The adoption of this guidance did not have a material impact on our consolidated financial statements.

4. Acquisitions

On August 1, 2013, we acquired all of the membership interests of Cable Holdings for $7,150 in cash, net of cash acquired. Cable Holdings is an education company that operates under the name of Benchmark Learning and offers short-term information technology and business learning solutions for career advancers and other professionals. The acquisition of Cable Holdings allowed us to immediately begin operating in the short-term learning solutions market, which we hope to expand upon by leveraging our current employer relationships, alumni and facilities, and integrating Cable Holdings’ operations into the Center for Professional Development @ ITT Technical Institute (the “CPD”).

Our consolidated financial statements include the results of Cable Holdings from the acquisition date. The revenue and expenses of Cable Holdings included in our Consolidated Statements of Income for the year ended December 31, 2013 were not material. Our revenue, net income and earnings per share would not have been materially affected, if the revenue and expenses of Cable Holdings were presented for the years ended December 31, 2013, 2012 and 2011 as if the transaction had occurred at the beginning of the earliest period presented. The costs incurred to acquire Cable Holdings were expensed and were not material.

We accounted for the acquisition of Cable Holdings in accordance with ASC 805, “Business Combinations” (“ASC 805”), which requires the use of the acquisition method of accounting for all business combinations. We considered the report of a third-party valuation firm in allocating the purchase price to identifiable net assets. The excess of the consideration paid over the estimated fair values of the identifiable net assets acquired was recognized as goodwill and is expected to be deductible for income tax purposes. The identifiable intangible assets acquired consist of customer relationships, non-compete agreements and training materials, which are being amortized over a weighted-average life of approximately five years. The estimated aggregate amortization expense in each of the next five succeeding fiscal years is not material.

The following table sets forth the estimated fair values to be allocated to the major classes of assets acquired and liabilities assumed in the Cable Holdings acquisition as of the acquisition date:

	Assets Acquired		Liabilities Assumed
Accounts receivable and other current assets	$	1,110
Furniture and equipment		480
Identifiable intangible assets		2,390
Goodwill		3,958
Accounts payable and other liabilities			$	788

On January 31, 2014, we acquired certain assets and assumed certain liabilities of CompetenC Solutions, Inc. and Great Equalizer, Inc. for approximately $5,186. CompetenC Solutions, Inc. and Great Equalizer, Inc. were education companies that operated primarily under the name of Ascolta and offered short-term information technology and business learning solutions for career advancers and other professionals. We acquired the Ascolta business to expand the CPD offerings in the short-term learning solutions market.

We will account for the acquisition of the Ascolta business in accordance with ASC 805. The purchase price has been preliminarily allocated to identifiable net assets. The excess of the consideration paid over the estimated fair

F - 18

values of the identifiable net assets acquired will be recognized as goodwill and is expected to be deductible for income tax purposes. The fair value of the identifiable intangible assets acquired is preliminary, pending receipt of the final valuation. The identifiable intangible assets acquired consist of customer relationships and non-compete agreements, which are expected to be amortized over an estimated weighted-average life of approximately five years.

The following table sets forth the estimated fair values allocated to the major classes of assets acquired and liabilities assumed in the Ascolta business acquisition as of the acquisition date:

	Assets Acquired		Liabilities Assumed
Accounts receivable and other current assets	$	849
Furniture and equipment		370
Identifiable intangible assets		1,670
Goodwill		3,332
Other current liabilities			$	1,035

The estimated fair values of the assets acquired and liabilities assumed in the Ascolta acquisition are preliminary and based on information that was available to us as of the acquisition date and as of the date of issuance of these financial statements. We may revise the allocation of the purchase price when we complete the final review of the information. We expect to finalize the purchase price allocation by October 31, 2014.

Our revenue, net income and earnings per share would not have been materially affected, if the revenue and expenses of the Ascolta business were presented for the years ended December 31, 2013, 2012 and 2011 as if the transaction had occurred at the beginning of the earliest period presented. The costs incurred to acquire the Ascolta business were expensed and were not material.

5. Fair Value and Credit Risk of Financial Instruments

Fair value for financial reporting is defined as the price that would be received upon the sale of an asset or paid upon the transfer of a liability in an orderly transaction between market participants at the measurement date. The fair value measurement of our financial assets utilized assumptions categorized as observable inputs under the accounting guidance. Observable inputs are assumptions based on independent market data sources.

The following table sets forth information regarding the recurring fair value measurement of our financial assets as reflected on our Consolidated Balance Sheet as of December 31, 2013:

			Fair Value Measurements at Reporting Date Using
Description	As of December 31, 2013		(Level 1) Quoted Prices in Active Markets for Identical Assets		(Level 2) Significant Other Observable Inputs		(Level 3) Significant Unobservable Inputs
Cash equivalents:
Money market fund	$	214,985	$	214,985	$	0	$	0
Restricted cash:
Money market fund		2,433		2,433		0		0
Other assets:
Money market fund		8,626		8,626		0		0
	$	226,044	$	226,044	$	0	$	0

F - 19

The following table sets forth information regarding the recurring fair value measurement of our financial assets as reflected on our Consolidated Balance Sheet as of December 31, 2012:

			Fair Value Measurements at Reporting Date Using
Description	As of December 31, 2012		(Level 1) Quoted Prices in Active Markets for Identical Assets		(Level 2) Significant Other Observable Inputs		(Level 3) Significant Unobservable Inputs
Cash equivalents:
Money market fund	$	151,784	$	151,784	$	0	$	0
Restricted cash:
Money market fund		2,877		2,877		0		0
Other assets:
Money market fund		8,622		8,622		0		0
	$	163,283	$	163,283	$	0	$	0

We used quoted prices in active markets for identical assets as of the measurement dates to value our financial assets that were categorized as Level 1.

The carrying amounts for cash and cash equivalents, restricted cash, accounts receivable, accounts payable, and other current liabilities approximate fair value because of the immediate or short-term maturity of these financial instruments. We did not have any financial assets or liabilities recorded at estimated fair value on a non-recurring basis in our Consolidated Balance Sheets as of December 31, 2013 or 2012.

As of December 31, 2013, the carrying value of the PEAKS Trust Student Loans was approximately $84,209. The estimated fair value of the PEAKS Trust Student Loans was approximately $99,100 as of December 31, 2013. The fair value of the PEAKS Trust Student Loans was estimated using the income approach with estimated discounted expected cash flows. We utilized inputs that were unobservable in determining the estimated fair value of the PEAKS Trust Student Loans. The significant inputs used in determining the estimated fair value included the default rate, repayment rate and discount rate. Fair value measurements that utilize significant unobservable inputs are categorized as Level 3 measurements under the accounting guidance.

Each of the carrying value and the estimated fair value of the notes receivable and other receivables included in Prepaid expenses and other current assets or Other assets on our Consolidated Balance Sheet was approximately $2,500 as of December 31, 2013 and approximately $9,600 as of December 31, 2012. We estimated the fair value of the notes receivable and other receivables by discounting the future cash flows using current rates for similar arrangements. The assumptions used in this estimate are considered unobservable inputs. Fair value measurements that utilize significant unobservable inputs are categorized as Level 3 measurements under the accounting guidance.

Each of the carrying value and the estimated fair value of our debt under our credit agreement was approximately $50,000 as of December 31, 2013 and $140,000 as of December 31, 2012. The fair value of our debt under our credit agreement was estimated by discounting the future cash flows using current rates for similar loans with similar characteristics and remaining maturities. We utilized inputs that were observable or were principally derived from observable market data to estimate the fair value of our debt under our credit agreement. Fair value measurements that utilize significant other observable inputs are categorized as Level 2 measurements under the accounting guidance.

As of December 31, 2013, the carrying value of the PEAKS Senior Debt was approximately $229,224. The estimated fair value of the PEAKS Senior Debt was approximately $239,400 as of December 31, 2013. The fair value of the PEAKS Senior Debt was estimated using the income approach with estimated discounted cash flows. We utilized inputs that were unobservable in determining the estimated fair value of the PEAKS Senior Debt. The significant input used in determining the estimated fair value was the discount rate utilized for both credit and liquidity purposes. Fair value measurements that utilize significant unobservable inputs are categorized as Level 3 measurements under the accounting guidance.

Financial instruments that potentially subject us to credit risk consist primarily of accounts receivable, interest-bearing investments, notes receivable and the PEAKS Trust Student Loans. There is no concentration of credit risk of our accounts receivable, as the total is comprised of a large number of individual balances owed by students whose credit profiles vary and who are located throughout the United States. Our interest-bearing investments and cash equivalents generally consist of high-quality securities issued by various entities and major financial institutions. Certain of the assets of the party to whom we issued one of the notes receivable serve as collateral for the repayment of the note. The PEAKS Trust Student Loans consist of a large number of individual loans owed by borrowers, whose credit profiles vary and who are located throughout the United States.

6. Financial Aid Programs

We participate in various Title IV Programs of the HEA. In 2013, in the aggregate, our institutions derived approximately 82% of their applicable revenue from funds distributed under those Title IV Programs, as determined on a cash accounting basis under the calculation of the provision of the HEA commonly referred to as the “90/10 Rule.”

F - 20

We administer the Title IV Programs in separate accounts as required by government regulation. We are required to administer the funds in accordance with the requirements of the HEA and the ED’s regulations and must use due diligence in approving and disbursing funds. In the event we do not comply with federal requirements, or if student loan default rates rise to a level considered excessive by the federal government, we could lose our eligibility to participate in Title IV Programs or could be required to repay funds determined to have been improperly disbursed. Our management believes that we are in substantial compliance with the federal requirements.

7. Equity Compensation Plans

We have adopted the following equity compensation plans, referred to collectively as the “Plans”:

• ITT Educational Services, Inc. Amended and Restated 2006 Equity Compensation Plan – On May 7, 2013, our shareholders approved the ITT Educational Services, Inc. Amended and Restated 2006 Equity Compensation Plan (the “Amended 2006 Plan”). Prior to May 7, 2013, we adopted and our shareholders approved the 2006 ITT Educational Services, Inc. Equity Compensation Plan (the “Original 2006 Plan”). Awards may be granted to our employees and directors under the Amended 2006 Plan in the form of stock options (incentive and nonqualified), stock appreciation rights (“SARs”), restricted stock, RSUs, performance shares, performance units and other stock-based awards as defined in the plan. The Amended 2006 Plan increased the maximum number of shares of our common stock that may be issued pursuant to awards under the plan to 7,350,000, an increase of 3,350,000 over the 4,000,000 maximum under the Original 2006 Plan. Each share underlying stock options and SARs granted and not forfeited or terminated, reduces the number of shares available for future awards by one share. The delivery of a share in connection with a “full-value award” (i.e., an award of restricted stock, RSUs, performance shares, performance units or any other stock-based award with value denominated in shares) reduces the number of shares remaining for other awards by two shares. As of December 31, 2013, restricted stock, RSUs and nonqualified stock options have been awarded under this plan.

• 1999 Outside Directors Stock Option Plan – A maximum of 500,000 shares of our common stock were available to be issued upon the exercise of nonqualified stock options granted to non-employee directors under the 1999 Outside Directors Stock Option Plan (“1999 Directors Stock Plan”).

• 1997 ITT Educational Services, Inc. Incentive Stock Plan – A maximum of 8,100,000 shares of our common stock were available to be issued upon the exercise of stock options and pursuant to other forms of awards under the 1997 ITT Educational Services, Inc. Incentive Stock Plan (“1997 Stock Plan”), but no more than 20% of the total number of shares on a cumulative basis could have been used for restricted stock or performance share awards. A maximum of 1.5% of our outstanding shares of common stock could have been issued annually, with any unissued shares available to be issued in later years.

No additional awards have been or will be granted after May 9, 2006 under the 1999 Directors Stock Plan or the 1997 Stock Plan. All awards outstanding as of December 31, 2013 under the 1999 Directors Stock Plan and the 1997 Stock Plan will expire in 2014.

The stock-based compensation expense and related income tax benefit recognized in our Consolidated Statements of Income in the periods indicated were as follows:

	Year Ended December 31,
	2013			2012			2011
Stock-based compensation expense	$	11,638		$	16,658		$	17,074
Income tax (benefit)	($	4,481	)	($	6,414	)	($	6,574	)

We did not capitalize any stock-based compensation cost in the years ended December 31, 2013, 2012 and 2011.

As of December 31, 2013, we estimated that pre-tax compensation expense for unvested stock-based compensation grants in the amount of approximately $13,900, net of estimated forfeitures, will be recognized in future periods. This expense will be recognized over the remaining service period applicable to the grantees which, on a weighted-average basis, is approximately 2.0 years.

Stock Options. Under the Plans, the stock option exercise price may not be less than 100% of the fair market value of our common stock on the date of grant. The maximum term of any stock option granted under the Amended 2006 Plan and Original 2006 Plan may not exceed seven years from the date of grant, and those stock options will be exercisable at such times and under conditions as determined by the Compensation Committee of our Board of Directors, subject to the limitations contained in the plan. All stock options awarded under the Amended 2006 Plan and Original 2006 Plan typically vest and become exercisable in three equal installments commencing with the first anniversary of the date of grant.

F - 21

Under the 1999 Directors Stock Plan, the stock options granted typically vested and became exercisable on the first anniversary of the grant. The maximum term of any stock option granted under the 1999 Directors Stock Plan was: (a) 10 years from the date of grant for any stock options granted prior to January 25, 2005; and (b) seven years from the date of grant for any stock options granted on or after January 25, 2005.

Under the 1997 Stock Plan, the stock options granted typically vested and became exercisable in three equal annual installments commencing with the first anniversary of the date of grant. The maximum term of any stock option granted under the 1997 Stock Plan was 10 years and two days from the date of grant.

The stock options granted, forfeited, exercised and expired in the period indicated were as follows:

	Year Ended December 31, 2013
				Weighted					Weighted
				Average		Aggregate			Average	Aggregate
	# of			Exercise		Exercise			Remaining	Intrinsic
	Shares			Price		Price			Contractual Term	Value (1)
Outstanding at beginning of period		1,574,604		$	84.90	$	133,691
Granted		156,500		$	19.55		3,059
Forfeited		(16,668	)	$	75.11		(1,252	)
Exercised		0		$	0.00		0
Expired		(381,988	)	$	69.48		(26,543	)
Outstanding at end of period		1,332,448		$	81.77	$	108,955		2.4 years	$	2,198
Exercisable at end of period		1,040,443		$	92.28	$	96,016		2.1 years	$	0

(1) The aggregate intrinsic value of the stock options was calculated by identifying those stock options that had a lower exercise price than the closing market price of our common stock on December 31, 2013 and multiplying the difference between the closing market price of our common stock and the exercise price of each of those stock options by the number of shares subject to those stock options that were outstanding or exercisable, as applicable.

The following table sets forth information regarding the stock options granted and exercised in the periods indicated:

	Year Ended December 31,
	2013		2012		2011
Shares subject to stock options granted		156,500		156,500		159,500
Weighted average grant date fair value	$	9.27	$	31.36	$	28.90
Shares subject to stock options exercised		0		202,820		118,410
Intrinsic value of stock options exercised	$	0	$	4,802	$	3,095
Proceeds received from stock options exercised	$	0	$	8,345	$	5,599
Tax benefits realized from stock options exercised	$	0	$	1,602	$	1,190

The intrinsic value of a stock option is the difference between the fair market value of the stock and the option exercise price. The fair value of each stock option grant was estimated on the date of grant using the following assumptions:

	Year Ended December 31,
	2013			2012			2011
Risk-free interest rates		0.7	%		0.7	%		1.8	%
Expected lives (in years)		4.6			4.5			4.7
Volatility		60	%		51	%		48	%
Dividend yield		None			None			None

Restricted Stock Units. Under the Amended 2006 Plan and Original 2006 Plan, RSUs awarded are subject to a restriction period of at least: (a) for awards made prior to November 24, 2010, three years in the case of a time-based period of restriction and one year in the case of a performance-based period of restriction; and (b) for awards made after November 24, 2010, one year. All RSUs awarded under the Amended 2006 Plan and Original 2006 Plan that were not vested as of December 31, 2013 have a time-based restriction period that ranges from ending on the first to the third anniversary of the date of grant.

F - 22

The following table sets forth the number of RSUs that were granted, forfeited and vested in the period indicated:

	Year Ended December 31, 2013
	# of RSUs			Weighted Average Grant Date Fair Value
Unvested at beginning of period		413,645		$	75.35
Granted		522,014		$	19.98
Forfeited		(129,327	)	$	46.72
Vested		(68,488	)	$	88.60
Unvested at end of period		737,844		$	39.96

The total fair market value of the RSUs that vested and were settled in shares of our common stock was $1,241 in the year ended December 31, 2013, $4,568 in the year ended December 31, 2012 and $2,454 in the year ended December 31, 2011. Also, in the year ended December 31, 2012, 48,935 RSUs vested and were settled in cash for $3,073.

8. Stock Repurchases

As of December 31, 2013, approximately 7.8 million shares remained available for repurchase under the share repurchase program (the “Repurchase Program”) authorized by our Board of Directors. The terms of the Repurchase Program provide that we may repurchase shares of our common stock, from time to time depending on market conditions and other considerations, in the open market or through privately negotiated transactions in accordance with Rule 10b-18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Unless earlier terminated by our Board of Directors, the Repurchase Program will expire when we repurchase all shares authorized for repurchase thereunder.

The following table sets forth information regarding the shares of our common stock that we repurchased in the periods indicated:

	Year Ended December 31,
	2013		2012
Number of shares		0		3,025,700
Total cost	$	0	$	207,918
Average cost per share	$	0	$	68.72

9. Earnings (Loss) Per Common Share

Earnings (loss) per common share for all periods have been calculated in conformity with ASC 260, “Earnings Per Share.” This data is based on historical net income (loss) and the weighted average number of shares of our common stock outstanding during each period as set forth in the following table:

	Year Ended December 31,
	2013		2012		2011
	(In thousands)
Shares:
Weighted average number of shares of common stock outstanding		23,412		23,880		27,429
Shares assumed issued (less shares assumed purchased for treasury) for stock-based compensation		Not Applicable		119		226
Outstanding shares for diluted earnings (loss) per share calculation		23,412		23,999		27,655

A total of approximately 1.4 million shares for fiscal year 2013, approximately 1.7 million shares for fiscal year 2012 and approximately 1.1 million shares for fiscal year 2011 were excluded from the calculation of our diluted earnings per common share, because the effect was anti-dilutive.

10. Variable Interest Entities

Under ASC 810, an entity that holds a variable interest in a VIE and meets certain requirements would be considered to be the primary beneficiary of the VIE and required to consolidate the VIE in its consolidated financial statements. In order to be considered the primary beneficiary of a VIE, an entity must hold a variable interest in the VIE and have both:

• the power to direct the activities that most significantly impact the economic performance of the VIE; and

• the right to receive benefits from, or the obligation to absorb losses of, the VIE that could be potentially significant to the VIE.

F - 23

The PEAKS Trust and the 2009 Entity (defined below) are VIEs as defined under ASC 810. We hold variable interests in the PEAKS Trust as a result of:

• a subordinated note issued to us by the PEAKS Trust in exchange for the portion of each private education loan disbursed to us under the PEAKS Program that we transferred to the PEAKS Trust (“Subordinated Note”); and

• our guarantee of the payment of the principal and interest owed on the PEAKS Senior Debt, the administrative fees and expenses of the PEAKS Trust and a minimum required ratio of assets of the PEAKS Trust to outstanding PEAKS Senior Debt (“PEAKS Guarantee”).

We hold variable interests in an unaffiliated entity (the “2009 Entity) as a result of:

• a risk sharing agreement that we entered into with the 2009 Entity (the “2009 RSA”) on February 20, 2009 in connection with other agreements to create a program that made private education loans available to our students to help pay the students’ cost of education that financial aid from federal, state and other sources did not cover (the “2009 Loan Program”); and

• a revolving note owed to us by the 2009 Entity (the “Revolving Note”).

To determine whether we are the primary beneficiary of the PEAKS Trust or the 2009 Entity, we:

• assessed the risks that the VIE was designed to create and pass through to its variable interest holders;

• identified the variable interests in the VIE;

• identified the other variable interest holders and their involvement in the activities of the VIE;

• identified the activities that most significantly impact the VIE’s economic performance;

• determined whether we have the power to direct those activities; and

• determined whether we have the right to receive the benefits from, or the obligation to absorb the losses of, the VIE that could potentially be significant to the VIE.

We determined that the activities of the PEAKS Trust and the 2009 Entity that most significantly impact the economic performance of the PEAKS Trust and the 2009 Entity involve the servicing (which includes the collection) of the PEAKS Trust Student Loans and loans owned by the 2009 Entity. To make that determination, we analyzed various possible scenarios of student loan portfolio performance to evaluate the potential economic impact on the PEAKS Trust and the 2009 Entity. In our analysis, we made what we believe are reasonable assumptions based on historical data for the following key variables:

• the composition of the credit profiles of the borrowers;

• the interest rates and fees charged on the loans;

• the default rates and the timing of defaults associated with similar types of loans; and

• the prepayment and the speed of repayment associated with similar types of loans.

Based on our analysis, we concluded that we became the primary beneficiary of the PEAKS Trust on February 28, 2013. This was the first date that we had the power to direct the activities of the PEAKS Trust that most significantly impact the economic performance of the PEAKS Trust, because we could have exercised our right to terminate the PEAKS Servicing Agreement (as defined below), due to the failure of the entity that performs those servicing activities for the PEAKS Trust Student Loans on behalf of the PEAKS Trust to meet certain performance criteria specified in the PEAKS Servicing Agreement. We have not, however, exercised our right to terminate the PEAKS Servicing Agreement. As a result of our primary beneficiary conclusion, we consolidated the PEAKS Trust in our consolidated financial statements beginning on February 28, 2013. Prior to February 28, 2013, the PEAKS Trust was not required to be consolidated in our consolidated financial statements, because we concluded that we were not the primary beneficiary of the PEAKS Trust prior to that time. The PEAKS Trust is discussed in more detail below. The PEAKS Servicing Agreement is the agreement between the servicer and the PEAKS Trust (among other parties) that specifies the servicing activities to be provided by the servicer related to the PEAKS Trust Student Loans (the “PEAKS Servicing Agreement”).

Our consolidated financial statements for periods after February 28, 2013 include the PEAKS Trust, because we were considered to have control over the PEAKS Trust under ASC 810 as a result of our substantive unilateral right to terminate the PEAKS Servicing Agreement. We do not, however, actively manage the operations of the PEAKS Trust, and the assets of the consolidated PEAKS Trust can only be used to satisfy the obligations of the PEAKS Trust. Our obligations under the PEAKS Guarantee remain in effect, until the PEAKS Senior Debt and the PEAKS Trust’s fees and expenses are paid in full. See Note 16—Commitments and Contingencies.

Based on our analysis, we also concluded that we were not the primary beneficiary of the 2009 Entity as of December 31, 2013, because we did not have the power to direct the servicing activities on the private education loans

F - 24

owned by the 2009 Entity. As a result, we are not required under ASC 810 to consolidate the 2009 Entity in our consolidated financial statements as of and for the fiscal year ended December 31, 2013. Our conclusion that we were not the primary beneficiary of the 2009 Entity did not change from the prior reporting period. Therefore, there was no effect on our consolidated financial statements arising from our conclusion that we were not the primary beneficiary of the 2009 Entity. The 2009 Entity is discussed in more detail below.

We may become the primary beneficiary of the 2009 Entity, if the entity that performs the servicing activities for the 2009 Entity (the “2009 Loan Program Servicer”) fails to meet certain performance criteria specified in the servicing agreement that governs the servicing activities of the private education loans made under the 2009 Loan Program (the “2009 Servicing Agreement”). If the 2009 Loan Program Servicer fails to meet those performance criteria, we have the right to terminate the 2009 Servicing Agreement and, therefore, would be considered to have the power to direct the activities of the 2009 Entity that most significantly impact the economic performance of the 2009 Entity. If that occurs, we would be required to consolidate the 2009 Entity in our consolidated financial statements. As of December 31, 2013, we believe that the performance criteria specified in the 2009 Servicing Agreement were met and, therefore, we did not have the right to terminate the 2009 Servicing Agreement. Based on preliminary loan performance data as of September 30, 2014 that we have received regarding the private education loans made under the 2009 Loan Program, however, we believe that, as of September 30, 2014, the 2009 Loan Program Servicer may not have met the performance criteria specified in the 2009 Servicing Agreement. As a result, it appears likely that the 2009 Loan Program Servicer either has failed, or within the foreseeable future will fail, to meet the performance criteria in the 2009 Servicing Agreement. Once that occurs, following a cure period and that assuming that no cure occurs, we will have the right to terminate the 2009 Servicing Agreement. As a result of that right, we will be required to consolidate the 2009 Entity into our consolidated financial statements. We believe that this right to terminate the 2009 Servicing Agreement will become operative in late 2014 or early 2015.

PEAKS Trust. On January 20, 2010, we entered into agreements with unrelated third parties to establish the PEAKS Program, which was a private education loan program for our students. Under the PEAKS Program, an unrelated lender originated private education loans to our eligible students and, subsequently, sold those loans to the PEAKS Trust. The PEAKS Trust issued the PEAKS Senior Debt to investors. The lender disbursed the proceeds of the private education loans to us for application to the students’ account balances with us that represented their unpaid education costs. We transferred a portion of the amount of each private education loan disbursed to us under the PEAKS Program to the PEAKS Trust in exchange for the Subordinated Note. No new private education loans were or will be originated under the PEAKS Program after July 2011, but immaterial amounts related to loans originated prior to that date were disbursed by the lender through March 2012.

The Subordinated Note does not bear interest and was recorded net of an unamortized discount based on an imputed interest rate of 9.0% in Other assets on our Consolidated Balance Sheet as of December 31, 2012. Prior to October 1, 2012, the discount was amortized and recognized in Interest income in our Consolidated Statements of Income over the term of the Subordinated Note. The maturity date of the Subordinated Note is in March 2026. The amount owed to us under the Subordinated Note was approximately $73,000 as of December 31, 2012. The carrying value of the Subordinated Note was eliminated from our Consolidated Balance Sheet when we consolidated the PEAKS Trust in our consolidated financial statements beginning on February 28, 2013.

The PEAKS Trust utilized the proceeds from the issuance of the PEAKS Senior Debt and the Subordinated Note to purchase the private education loans made by the lender to our students. The assets of the PEAKS Trust (which include, among other assets, the PEAKS Trust Student Loans) serve as collateral for, and are intended to be the principal source of, the repayment of the PEAKS Senior Debt and the Subordinated Note.

In the three months ended December 31, 2012, we determined it was probable that we would not collect the carrying value of the Subordinated Note and, therefore, concluded that the Subordinated Note was impaired. We recorded an impairment charge in the amount of approximately $10,300, which equaled the total carrying value of the Subordinated Note prior to recording the impairment charge. The carrying value of the Subordinated Note was approximately $0 as of December 31, 2012, and was included on our Consolidated Balance Sheet in Other assets. The carrying value of the Subordinated Note was eliminated from our Consolidated Balance Sheet when we consolidated the PEAKS Trust in our consolidated financial statements. We did not recognize any interest income related to the Subordinated Note in our Consolidated Statements of Income after September 30, 2012.

Under the PEAKS Guarantee we guarantee payment of the principal and interest owed on the PEAKS Senior Debt, the administrative fees and expenses of the PEAKS Trust and a minimum required ratio of assets of the PEAKS Trust to outstanding PEAKS Senior Debt. Our guarantee obligations under the PEAKS Program remain in effect until the PEAKS Senior Debt and the PEAKS Trust’s fees and expenses are paid in full. At such time, we will be entitled to repayment of the amounts that we paid under the PEAKS Guarantee (which do not include Payments on Behalf of Borrowers, as defined below), to the extent of available funds remaining in the PEAKS Trust. As of December 31, 2012, we had made payments totaling $12,342 under the PEAKS Guarantee (excluding Payments on Behalf of Borrowers), which we expected to be repaid to us (the “PEAKS Guarantee Receivable”). The PEAKS Guarantee Receivable was eliminated from our Consolidated Balance Sheet when we consolidated the PEAKS Trust in our consolidated financial statements. See Note 16 – Commitments and Contingencies, for a further discussion of the PEAKS Guarantee.

F - 25

We did not consolidate the PEAKS Trust in our consolidated financial statements as of December 31, 2012, because we concluded that we were not the primary beneficiary of the PEAKS Trust prior to February 28, 2013. We did, however, include the PEAKS Guarantee Receivable, net of accrued discount, and the contingent liability related to the PEAKS Guarantee in our consolidated financial statements as of December 31, 2012. We did not record a PEAKS Guarantee Receivable or a contingent liability related to the PEAKS Guarantee in our consolidated financial statements as of December 31, 2013. See Note 16 – Commitments and Contingencies, for a further discussion of those amounts.

We concluded that we became the primary beneficiary of the PEAKS Trust on February 28, 2013 and, therefore, were required to consolidate the PEAKS Trust in our consolidated financial statements. In accordance with ASC 810, the consolidation of the PEAKS Trust was treated as an acquisition of assets and liabilities and, therefore, the assets and liabilities of the PEAKS Trust were included in our consolidated financial statements at their fair value as of February 28, 2013. The following table sets forth the fair value of the assets and liabilities of the PEAKS Trust as of February 28, 2013 that were included on our Consolidated Balance Sheet on that date:

	As of February 28, 2013
	Assets		Liabilities
Restricted cash	$	1,703
PEAKS Trust student loans, less allowance for loan losses of $0		7,282
PEAKS Trust student loans, excluding current portion, less allowance for loan losses of $0		104,834
Current portion of PEAKS Trust senior debt			$	103,356
Other current liabilities				471
PEAKS Trust senior debt, excluding current portion				122,740
Total	$	113,819	$	226,567

The following table sets forth the carrying value of the assets and liabilities related to the PEAKS Program as of February 28, 2013 that we eliminated from our consolidated balance sheet when we consolidated the PEAKS Trust in our consolidated financial statements, and the line items within which those assets and liabilities were included:

	As of February 28, 2013
	Assets		Liabilities
Other assets	$	6,614
Other current liabilities			$	3,060
Other liabilities				43,054
Total	$	6,614	$	46,114

The fair value of the PEAKS Trust’s liabilities exceeded the fair value of the PEAKS Trust’s assets as of February 28, 2013 by $112,748. The amount of this excess was reduced by $39,500, which represented the net amount of the carrying value of the assets and liabilities related to the PEAKS Program that had been recorded in our consolidated financial statements as of February 28, 2013 and were eliminated upon the Consolidation. As a result, we recognized a total loss of $73,248 in our Consolidated Statement of Income for the year ended December 31, 2013 related to the Consolidation.

The following table sets forth the carrying values of assets and liabilities of the PEAKS Trust that were included on our Consolidated Balance Sheet as of December 31, 2013:

	As of December 31, 2013
	Assets		Liabilities
Restricted cash	$	2,593
PEAKS Trust student loans, less allowance for loan losses of $0		7,730
PEAKS Trust student loans, excluding current portion, less allowance for loan losses of $29,349		76,479
Current portion of PEAKS Trust senior debt			$	157,883
Other current liabilities				697
PEAKS Trust senior debt, excluding current portion				71,341
Total	$	86,802	$	229,921

F - 26

The assets of the PEAKS Trust can only be used to satisfy the obligations of the PEAKS Trust. Payment of the administrative fees and expenses of the PEAKS Trust and the principal and interest owed on the PEAKS Senior Debt are guaranteed by us under the PEAKS Guarantee.

The following table sets forth the revenue and expenses of the PEAKS Trust, excluding the loss on consolidation of the PEAKS Trust, that were included in our Consolidated Statement of Income in the year ended December 31, 2013:

	Year Ended December 31, 2013
Revenue	$	12,996
Student services and administrative expenses		5,288
Provision for PEAKS Trust student loan losses		29,349
Interest expense		21,288
Income (loss) before provision for income taxes	$	(42,929	)

The revenue of the PEAKS Trust consists of interest income on the PEAKS Trust Student Loans, which is the accretion of the accretable yield on the PEAKS Trust Student Loans. The servicing, administrative and other fees incurred by the PEAKS Trust are included in Student services and administrative expenses in our Consolidated Statements of Income. The provision for PEAKS Trust student loan losses represents the increase in the allowance for loan losses that occurred during the period. The allowance for loan losses represents the difference between the carrying value and the total present value of the expected principal and interest collections of each loan pool of the PEAKS Trust Student Loans, discounted by the loan pool’s effective interest rate as of December 31, 2013. Interest expense of the PEAKS Trust represents interest expense on the PEAKS Senior Debt, which includes the contractual interest obligation and the accretion of the discount on the PEAKS Senior Debt.

Beginning in the fourth quarter of 2012 and continuing through January 2014, we made payments on behalf of certain student borrowers under the PEAKS Program to the PEAKS Trust to avoid defaults by those borrowers on their PEAKS Trust Student Loans (“Payments on Behalf of Borrowers”), which defaults would have triggered much larger contractually required payments by us under the PEAKS Guarantee. At the time we made Payments on Behalf of Borrowers, we believed that those payments were contractually permitted and a form of payment to the PEAKS Trust that would satisfy obligations that were contractually required. Since that time, however, we have determined that Payments on Behalf of Borrowers are not permitted or required to support the PEAKS Trust. If we had not made Payments on Behalf of Borrowers, we would have had to make contractually required payments under the PEAKS Guarantee in greater amounts. We made Payments on Behalf of Borrowers after assessing:

• the likelihood of us being contractually required to make payments under the PEAKS Guarantee in the near future;

• the effect on our liquidity that would result from making payments under the PEAKS Guarantee compared to making Payments on Behalf of Borrowers;

• the effect that Payments on Behalf of Borrowers may have on the funds available to the PEAKS Trust to repay the Subordinated Note to us following full payment of the PEAKS Trust’s other obligations; and

• the fact that we will not be able to recover Payments on Behalf of Borrowers from the PEAKS Trust or the student borrowers on whose behalf we made those payments.

Payments on Behalf of Borrowers assisted in:

• maintaining the ratio of assets of the PEAKS Trust to outstanding PEAKS Senior Debt at the required level (the “Asset/Liability Ratio”); and

• satisfying the following month’s required payment of interest on the PEAKS Senior Debt and administrative fees and expenses of the PEAKS Trust.

Prior to the Consolidation, Payments on Behalf of Borrowers were reflected on our financial statements as a reduction to our contingent liability accrual. Following the Consolidation, Payments on Behalf of Borrowers were not reflected on our financial statements, since those payments were intercompany transactions, which were eliminated from our financial statements as a result of the Consolidation.

F - 27

The following table sets forth the guarantee payments and Payments on Behalf of Borrowers that were made related to the PEAKS Program in the periods indicated:

Type of Payment	January 1, 2013 Through February 28, 2013 (1)		March 1, 2013 Through December 31, 2013 (1)		Total Year Ended December 31, 2013		Year Ended December 31, 2012
PEAKS Guarantee	$	854	$	1,559	$	2,413	$	12,342
Payments on Behalf of Borrowers		532		10,967		11,499		2,762
Total	$	1,386	$	12,526	$	13,912	$	15,104

(1) We have provided separate columns showing the payment amounts prior to and after the Consolidation, because all transactions with the PEAKS Trust were eliminated from our consolidated financial statements after the Consolidation. Cash payments were, however, made by us throughout the periods indicated, including the periods after the Consolidation

In January 2014, we made Payments on Behalf of Borrowers of $1,832. In March 2014, we entered into a letter agreement, dated as of March 17, 2014, with the trustee under the PEAKS Program and the holders of the PEAKS Senior Debt (the “Letter Agreement”), in order to resolve differing interpretations of the permissibility of the Payments on Behalf of Borrowers under the PEAKS Program documents. Pursuant to the Letter Agreement, the trustee agreed to waive, and the holders of the PEAKS Senior Debt consented to the waiver of, any:

• breach of the PEAKS Program documents caused by us making Payments on Behalf of Borrowers, including any failure to make payments under the PEAKS Guarantee as a result thereof; and

• event of default under the PEAKS Program documents that may have arisen or resulted by us making Payments on Behalf of Borrowers.

In the Letter Agreement, we agreed, after the date of the Letter Agreement, not to make any further payments of any kind on behalf of any borrower in respect of a private education loan made under the PEAKS Program. In accordance with the terms of the Letter Agreement, we paid $40,000 on March 20, 2014, which is considered to be a payment under the PEAKS Guarantee and was applied primarily to make a mandatory prepayment of the PEAKS Senior Debt.

2009 Entity. On February 20, 2009, we entered into agreements with the 2009 Entity to create the 2009 Loan Program. Under the 2009 Loan Program, an unrelated lender originated private education loans to our eligible students and, subsequently, sold those loans to the 2009 Entity. The 2009 Entity purchased the private education loans from the lender utilizing funds received from its owners in exchange for participation interests in the private education loans acquired by the 2009 Entity. The lender disbursed the proceeds of the private education loans to us for application to the students’ account balances with us that represented their unpaid education costs. No new private education loans were or will be originated under the 2009 Loan Program after December 31, 2011, but immaterial amounts related to loans originated prior to that date were disbursed by the lender through June 2012.

In connection with the 2009 Loan Program, we entered into the 2009 RSA with the 2009 Entity. Under the 2009 RSA, we guarantee the repayment of any private education loans that are charged off above a certain percentage of the private education loans made under the 2009 Loan Program, based on the annual dollar volume. Under the 2009 RSA, we have an obligation to make the monthly payments due and unpaid on those private education loans that have been charged off above a certain percentage (“Regular Payments”). Instead of making Regular Payments, however, we may elect to:

• pay the then outstanding balance (plus accrued and unpaid interest) of those private education loans that have been charged off above a certain percentage and, with respect to which, an amount equal to at least ten monthly payments has been paid; or

• pay the then outstanding balance (plus accrued and unpaid interest) of those private education loans that have been charged off above a certain percentage and, with respect to which, an amount equal to at least ten monthly payments has not been paid, plus any interest that would otherwise have been payable until ten monthly payments had been made, discounted at the rate of 10% per annum

(collectively, “Discharge Payments”). We determined that the ability to make Discharge Payments as of December 31, 2013 did not give us the power to direct the activities that most significantly impacted the economic performance of the 2009 Entity and, therefore, did not change our conclusion that we were not the primary beneficiary of the 2009 Entity.

We are entitled to all amounts that the 2009 Entity recovers from loans in a particular loan pool made under the 2009 Loan Program that have been charged off, until all payments that we made under the 2009 RSA with respect to that loan pool have been repaid to us by the 2009 Entity. The following table sets forth the payments that we made to the 2009 Entity related to our guarantee obligations under the 2009 RSA and the amount of recoveries from charged-off loans paid to us by the 2009 Entity in the periods indicated:

	Year Ended December 31,
	2013			2012
Regular Payments	$	1,791		$	1,990
Discharge Payments		912			0
Recoveries from Charged-Off Loans		(103	)		(234	)
	$	2,600		$	1,756

F - 28

In the fiscal year ended December 31, 2013, we also offset $9,091 owed by us under the 2009 RSA against amounts owed to us by the 2009 Entity under the Revolving Note, instead of making additional payments in that amount. See Note 16 – Commitments and Contingencies for a further discussion of the offset. Approximately $6,786 of the amount that we claimed as an offset against the Revolving Note represented Discharge Payments. We recorded all of the amounts claimed as offsets in Other current liabilities on our Consolidated Balance Sheet as of December 31, 2013. In the year ended December 31, 2013, the 2009 Entity did not remit to us $574 of recoveries from charged-off loans that were owed to us. We recorded all of the amounts owed to us from the 2009 Entity for recoveries from charged-off loans in Prepaid expenses and other current assets on our Consolidated Balance Sheet as of December 31, 2013. See Note 16 – Commitments and Contingencies, for a further discussion of the 2009 RSA. We determined that claiming an offset against the Revolving Note for Regular Payments or Discharge Payments did not give us the power to direct the activities that most significantly impacted the economic performance of the 2009 Entity as of and for the year ended December 31, 2013 and, therefore, did not change our conclusion that we were not the primary beneficiary of the 2009 Entity.

In addition, we have made advances to the 2009 Entity under the Revolving Note. We did not make any advances in the fiscal years ended December 31, 2013 or 2012 to the 2009 Entity under the Revolving Note that we were not contractually required to make. Certain of the assets of the 2009 Entity serve as collateral for the Revolving Note. The Revolving Note bears interest, is subject to customary terms and conditions and is currently due and payable in full. The advances under the Revolving Note were primarily used by the 2009 Entity to purchase additional private education loans under the 2009 Loan Program that otherwise may not have been originated. The period of time during which we could have made additional advances under the Revolving Note ended on January 1, 2014.

The amount owed to us under the Revolving Note, excluding the offsets described above, was approximately $8,200 as of December 31, 2013 and $8,300 as of December 31, 2012. In the three months ended December 31, 2012, we determined that circumstances indicated it was probable that we would not collect the full carrying value of the Revolving Note and, therefore, concluded that the Revolving Note was impaired. We recorded an impairment charge in the amount of $4,900, which equaled the amount that the carrying value of the Revolving Note exceeded the present value of the expected future cash flows from that note. The carrying value of the Revolving Note prior to recording the impairment charge was approximately $7,800. The carrying value of the Revolving Note was approximately $2,500 as of December 31, 2013 and $2,900 as of December 31, 2012, and was included on our Consolidated Balance Sheets in Prepaid expenses and other current assets as of December 31, 2013 and in Other assets as of December 31, 2012. We have not recognized any interest income related to the Revolving Note in our Consolidated Statements of Income during the time that the Revolving Note has been impaired.

11. PEAKS Trust Student Loans

We concluded that we were required to consolidate the PEAKS Trust in our consolidated financial statements beginning on February 28, 2013. See Note 10 – Variable Interest Entities, for a further discussion of the Consolidation. As a result, the assets and liabilities of the PEAKS Trust were included on our Consolidated Balance Sheet as of December 31, 2013. The PEAKS Trust Student Loans are included in the line items related to the PEAKS Trust Student Loans on our Consolidated Balance Sheet.

A significant number of the PEAKS Trust Student Loans were determined to be credit impaired upon consolidation. Loans determined to be credit impaired upon consolidation or acquisition (“Purchased Credit Impaired Loans” or “PCI Loans”), are initially measured at fair value in accordance with ASC 310-30, “Receivables – Loans and Debt Securities Acquired with Deteriorated Credit Quality” (“ASC 310-30”). A loan is considered a PCI Loan, if it has evidence of deteriorated credit quality following the loan’s origination date. As a result, at the date of consolidation or acquisition, it is probable that all contractually required payments under a PCI Loan will not be collected.

The PEAKS Trust Student Loans that did not individually have evidence of deteriorated credit quality at the time of consolidation were also initially measured at fair value and are accounted for in accordance with ASC 310-30. We believe that following the guidance of ASC 310-30 by analogy with respect to those loans provides the most reasonable presentation of the value of those loans, primarily due to:

• the evidence of deteriorated credit quality of a significant number of the PEAKS Trust Student Loans; and

• the probability that all contractually required payments with respect to those loans will not be collected.

F - 29

All of the PEAKS Trust Student Loans are, therefore, considered to be, and reported as, PCI Loans.

This accounting treatment is consistent with the Confirmation Letter, in which the AICPA summarized the SEC staff’s view regarding the accounting in subsequent periods for discount accretion associated with loan receivables acquired in a business combination or asset purchase. In this letter, the AICPA states that it understands that the SEC staff will not object to an accounting policy based on contractual or expected cash flow. We believe that following ASC 310-30 by analogy with respect to the PEAKS Trust Student Loans that did not individually have evidence of deteriorated credit quality at the time of consolidation is an appropriate application of the accounting guidance to determine the initial measurement of the value of those loans.

PCI Loans recognized upon consolidation or acquisition in the same fiscal quarter may be aggregated into one or more pools, provided that the PCI Loans in each pool have common risk characteristics. The PEAKS Trust Student Loans were considered to be PCI Loans upon consolidation and were aggregated into 24 separate pools of loans, based on common risk characteristics of the loans, which included:

• the fiscal quarter in which the PEAKS Trust Student Loan was originated; and

• the consumer credit score of the borrower.

PCI Loans that do not have evidence of deteriorated credit quality are not aggregated in the same pools with PCI Loans that have evidence of deteriorated credit quality. The same aggregation criteria, however, were used to determine those loan pools. Each loan pool is accounted for as a single asset with a single composite interest rate and an aggregate expectation of cash flows.

Upon the Consolidation on February 28, 2013, the PEAKS Trust Student Loans were recorded at their estimated fair value. The estimated fair value of the PEAKS Trust Student Loans as of February 28, 2013 was determined using an expected cash flow methodology. Projected default rates and forbearances were considered in applying the estimated cash flow methodology. Prepayments of loans were not considered when estimating the expected cash flows, because, historically, few PEAKS Trust Student Loans have been prepaid. No allowance for loan loss was established as of February 28, 2013, because all of the PEAKS Trust Student Loans were recorded at fair value and future credit losses are considered in the estimate of fair value.

The following table sets forth the estimated fair value, accretable yield and expected cash flows for the PEAKS Trust Student Loans, in total and for those loans pursuant to which ASC 310-30 was applied by analogy, as of the date indicated:

	As of February 28, 2013
	Total		ASC 310-30 Applied By Analogy
Estimated fair value	$	112,116	$	60,177
Accretable yield	$	100,953	$	58,843
Expected cash flows	$	213,069	$	119,020

The excess of any cash flows expected to be collected with respect to a loan pool of the PEAKS Trust Student Loans over the carrying value of the loan pool is referred to as the accretable yield. The accretable yield is not reported on our Consolidated Balance Sheets, but it is accreted and included as interest income using the effective interest method, which is at a level rate of return over the remaining estimated life of the loan pool.

The contractually required future principal and interest payments for all PEAKS Trust Student Loans outstanding at February 28, 2013 totaled approximately $487,800. The contractually required future principal and interest payments for the PEAKS Trust Student Loans outstanding at February 28, 2013 pursuant to which ASC 310-30 was applied by analogy totaled approximately $213,600. The excess of the contractually required payments of the PEAKS Trust Student Loans over the expected cash flows is referred to as the nonaccretable difference. As of February 28, 2013, the nonaccretable difference was approximately $274,700 for all outstanding PEAKS Trust Student Loans and approximately $94,600 for those outstanding PEAKS Trust Student Loans pursuant to which ASC 310-30 was applied by analogy.

On a quarterly basis subsequent to February 28, 2013, we estimate the principal and interest expected to be collected over the remaining life of each loan pool. These estimates include assumptions regarding default rates, forbearances and other factors that reflect then-current market conditions. Prepayments of loans were not considered when estimating the expected cash flows, because, historically, few PEAKS Trust Student Loans have been prepaid.

If a decrease in the expected cash flows of a loan pool is probable and would cause the expected cash flows to be less than the expected cash flows at the date of the Consolidation or the end of the previous fiscal quarter, whichever is later, we would record the impairment as:

• a provision for PEAKS Trust student loan losses in our Consolidated Statement of Income; and

• an increase in the allowance for loan losses on our Consolidated Balance Sheet.

F - 30

The provision for PEAKS Trust student loan losses represents the increase in the allowance for loan losses that occurred during the period. The allowance for loan losses is the difference between the carrying value and the total present value of the expected principal and interest collections of each loan pool, discounted by the loan pool’s effective interest rate at the date of the Consolidation or the end of the previous fiscal quarter, whichever is later. If a significant increase in the expected cash flows of a loan pool is probable and would cause the expected cash flows to be greater than the expected cash flows at the date of Consolidation or the end of the previous fiscal quarter, whichever is later, we would:

• first reverse any allowance for loan losses with respect to that loan pool that was previously recorded on our Consolidated Balance Sheet, up to the amount of that allowance; and

• record any remaining increase prospectively as a yield adjustment over the remaining estimated lives of the loans in the loan pool.

The following table sets forth information regarding changes in the allowance for loan losses of the loan pools of the PEAKS Trust Student Loans in the aggregate in the period indicated:

	Year Ended December 31,
	2013
Balance as of February 28, 2013	$	0
Loans charged off		0
Recoveries from charged off loans		0
Provision for loan losses		29,349
Balance as of December 31, 2013	$	29,349

Adjustments to the interest income of a loan pool are recognized prospectively, if those adjustments are due to:

• changes in variable interest rates; or

• any other changes in the timing of the expected cash flows of the loan pools.

Modifications were made to PCI Loans in each of the fiscal quarters in 2013 and were primarily due to forbearances granted with respect to the payment of those loans. We consider the impact of any modifications made to PCI Loans as part of our quarterly assessment of whether:

• a probable and significant change in the expected cash flows of the PCI Loans has occurred; and

• the loans should continue to be accounted for and reported as PCI loans.

In evaluating the impact of modifications made to PCI Loans on the expected cash flows of those loans, we consider the effect of any foregone interest and the potential for future default. These default estimates are used to calculate expected credit losses with respect to each loan pool. In developing these probabilities of default estimates, we considered the relationship between the credit quality characteristics of the loans in the loan pool and certain assumptions based on the performance history of the PEAKS Trust Student Loans and industry data related to the severity and recovery lag of defaults applicable to private education loans. Loans for which Payments on Behalf of Borrowers were made were assumed to be defaulted loans in our default estimates. Forbearances have been granted with respect to the payment of approximately 25% of the PEAKS Trust Student Loans.

The charge off of a PCI Loan results in the removal of that loan from the underlying PCI Loan pool and reduces the loan pool discount. If the discount for principal losses for a particular PCI Loan pool has been fully depleted, the charge off of a PCI Loan will reduce the PCI Loan pool’s allowance for loan losses. Removal of a PCI Loan from the underlying PCI Loan Pool does not change the effective yield of the PCI Loan Pool.

As of December 31, 2013, the outstanding balance of the PEAKS Trust Student Loans, including accrued interest, was approximately $279,400. The carrying amount of the PEAKS Trust Student Loans included under the line items related to the PEAKS Trust Student Loans on our Consolidated Balance Sheet was $84,209 as of December 31, 2013. The PEAKS Trust Student Loans were not included on our Consolidated Balance Sheets prior to February 28, 2013.

F - 31

The following table sets forth information regarding aggregate changes in accretable yield of the loan pools of the PEAKS Trust Student Loans, in total and for those loans pursuant to which ASC 310-30 was applied by analogy, for the period indicated:

	Year Ended December 31, 2013
	Total			ASC 310-30 Applied By Analogy
Balance as of January 1	$	0		$	0
Additions resulting from the Consolidation		100,953			58,843
Accretion		(12,996	)		(7,243	)
Reclassification from nonaccretable difference and changes in expected cash flows		(17,377	)		(9,326	)
Balance as of December 31	$	70,580		$	42,274

12. Property and Equipment

The following table sets forth our property and equipment, net, as of the dates indicated:

	As of December 31,
	2013			2012
Furniture and equipment	$	162,128		$	171,534
Buildings and building improvements		134,993			134,303
Land and land improvements		39,609			39,609
Leasehold improvements		20,953			21,447
Software		8,620			8,620
Construction in progress		156			1,177
	$	366,459		$	376,690
Less: Accumulated depreciation and amortization		(197,950	)		(186,800	)
Property and equipment, net	$	168,509		$	189,890

Software includes purchased and internally developed software.

The following table sets forth the depreciation and amortization expense for the assets listed above in the periods indicated:

	Year Ended December 31,
	2013		2012		2011
Depreciation and amortization expense	$	27,007	$	29,320	$	27,856

13. Debt

On March 21, 2012, we entered into a credit agreement (the “Credit Agreement”) that provided for a $325,000 senior revolving credit facility. We entered into amendments to the Credit Agreement on March 31, 2014, May 29, 2014, June 30, 2014 (the “Third Amendment”), July 30, 2014 (the “Fourth Amendment”) and September 15, 2014 (the “Fifth Amendment”), and we entered into a Consent to Credit Agreement, which is effective upon the delivery by us to the lenders of our audited consolidated financial statements included in this filing (the “Consent”). The Credit Agreement, as so amended and including the Consent, is referred to herein as the “Amended Credit Agreement.” The Amended Credit Agreement has a maturity date of March 21, 2015.

A portion of the borrowings under the Credit Agreement were used to prepay the entire outstanding indebtedness under a prior credit agreement which was terminated on March 21, 2012. In addition to the prepayment of the outstanding indebtedness under the prior credit agreement, borrowings under the Amended Credit Agreement are used for general corporate purposes.

Under the Amended Credit Agreement, the aggregate commitment of the lenders, effective June 30, 2014, is reduced to $135,000, and the portion of the commitments available for letters of credit is increased from $25,000 to $85,000. Certain letters of credit in an aggregate amount of approximately $2,352 previously issued by JPMorgan Chase Bank, N.A. are deemed to be letters of credit issued pursuant to the Amended Credit Agreement. If we have not caused the issuance of a letter of credit payable to the ED (“ED Letter of Credit”) by November 15, 2014, the aggregate commitments of the lenders will be reduced to $100,000. In addition, the commitments of the lenders under the Amended Credit Agreement will be reduced to the extent that borrowings are repaid by us using proceeds from certain types of transactions specified in the Fourth Amendment and the Fifth Amendment, as described further below.

Borrowings under the Amended Credit Agreement bear interest, at our option, at the London Interbank Offered Rate (“LIBOR”) plus an applicable margin or at an alternative base rate, as defined under the Amended Credit Agreement, plus an applicable margin. The applicable margin for borrowings under the Amended Credit Agreement is determined based on the ratio of our total Indebtedness (as defined in the Amended Credit Agreement and which primarily includes outstanding borrowings, recorded contingent liabilities related to our guarantee obligations, letters of credit and surety bonds) to EBITDA (as defined in the Amended Credit Agreement) (the “Leverage Ratio”) as of

F - 32

the end of each fiscal quarter. We also pay a commitment fee on the amount of the unutilized commitments under the Amended Credit Agreement. The amount of the commitment fee is determined based on the Leverage Ratio as of the end of each quarter. The effective interest rate on our borrowings was approximately:

• 3.60% per annum in the year ended December 31, 2013;

• 2.40% per annum in the year ended December 31, 2012; and

• 1.20% per annum in the year ended December 31, 2011.

The commitment fee under the Amended Credit Agreement was 0.40% as of December 31, 2013.

We recognized interest expense and fees (including the facility fee and commitment fee) on our borrowings under the Amended Credit Agreement or the prior credit agreement, as applicable, of $3,424 in the year ended December 31, 2013, $3,303 in the year ended December 31, 2012 and $1,825 in the year ended December 31, 2011.

In addition to the participation fee required to be paid by us pursuant to the original terms of the Credit Agreement related to letters of credit, which accrues at the same rate used to determine the interest rate applicable to Eurodollar Revolving Loans (as defined in the Amended Credit Agreement), the Fifth Amendment provides that an additional participation fee is required to be paid by us related to the ED Letter of Credit, which will accrue at a ticking fee rate on the average daily amount of the lenders’ letter of credit exposure with respect to the ED Letter of Credit. The ticking fee rate is defined as:

• 0.00% per annum for the period from September 15, 2014 through and including March 21, 2015;

• 1.00% per annum for the period from March 22, 2015 through and including March 21, 2016;

• 2.00% per annum for the period from March 22, 2016 through and including March 21, 2017;

• 3.00% per annum for the period from March 22, 2017 through and including March 21, 2018;

• 4.00% per annum for the period from March 22, 2018 through and including March 21, 2019; and

• 5.00% per annum for the period from March 22, 2019 through November 15, 2019.

The Amended Credit Agreement contains, among other things, covenants, representations and warranties and events of default customary for credit facilities. We are required to maintain compliance with a maximum Leverage Ratio, a minimum fixed charge coverage ratio, a minimum liquidity amount, and several covenants related to the ED’s regulations. We were in compliance with those covenants as of December 31, 2013, after giving effect to the Third Amendment and the Fourth Amendment. The Third Amendment provides that noncompliance with the Leverage Ratio as of the end of the fiscal quarters ending March 31, 2013, June 30, 2013 and September 30, 2013, and noncompliance with the fixed charge coverage ratio as of the end of the fiscal quarters ending March 31, 2013, June 30, 2013, September 30, 2013, and December 31, 2013 (in each case, before giving effect to the Third Amendment) have been waived by the lenders. In addition, among other things, the Third Amendment, the Fourth Amendment, the Fifth Amendment and the Consent, taken together:

• provided that our consolidated financial statements (and related certificates) as of and for the fiscal year ended December 31, 2013, did not have to be furnished by us to the lenders until October 15, 2014;

• provide that our condensed consolidated financial statements (and related certificates) as of and for the fiscal quarter ended March 31, 2014, do not have to be furnished by us to the lenders until November 15, 2014;

• provide that our condensed consolidated financial statements (and related certificates) as of and for the fiscal quarter ended June 30, 2014, do not have to be furnished by us to the lenders until November 15, 2014;

• provide that our condensed consolidated financial statements (and related certificates) as of and for the fiscal quarter ended September 30, 2014, do not have to be furnished by us to the lenders until December 15, 2014;

• amend certain covenants to allow for the Consolidation beginning on February 28, 2013, and for other factors; and

• waive certain defaults related to our financial reporting.

The Amended Credit Agreement:

• is secured by a pledge of the equity interests of our subsidiaries;

• is guaranteed by one of our subsidiaries;

• is secured by security interests in substantially all of our personal property and the personal property of the subsidiary guarantor; and

• is secured by mortgages on 30 separate parcels of land owned by us, including all of the improvements thereto and fixtures thereon (the “Mortgaged Property”).

The Fourth Amendment provides that an event of default under the Amended Credit Agreement will occur, if, among other things, the ED imposes a delay of more than five days in our receipt of Title IV Program funds. The Fifth Amendment provides that an event of default under the Amended Credit Agreement will occur if, among other things, we do not engage a financial advisor acceptable to the administrative agent before November 15, 2014 (or another date not later than December 15, 2014, if acceptable to the administrative agent). Based on our discussions with the administrative agent, we understand that the financial advisor would be retained to assist us in our ongoing efforts to identify and secure alternative financing.

F - 33

The Fifth Amendment provides that the ED Letter of Credit will not be issued unless we have previously delivered certain real estate due diligence items related to the Mortgaged Property. In addition, the Fifth Amendment allows for the ED Letter of Credit, if issued, to have a term ending not later than November 15, 2019.

Under the Amended Credit Agreement, we are required to provide cash collateral (in an amount equal to 109% of the face amount of the ED Letter of Credit and 103% of the face amount of all other letters of credit) for any letter of credit issued under the Amended Credit Agreement:

• after July 30, 2014, immediately upon issuance, except for the ED Letter of Credit, for which cash collateral is not required, until the earlier of December 31, 2014 or when net cash proceeds are received from certain transactions described in the next paragraph; and

• before July 30, 2014, by the earlier of December 31, 2014 or when net cash proceeds are received from certain transactions described in the next paragraph.

All amounts posted as cash collateral for letters of credit will be treated as cash for purposes of determining our compliance with the minimum liquidity covenant of the Amended Credit Agreement.

Under the Fourth Amendment and the Fifth Amendment, in the event that any net cash proceeds are received by us or a material subsidiary of ours in connection with any sale, transfer, lease or other disposition of the Mortgaged Property, including in connection with any sale and leaseback transaction, any mortgage financing or similar transaction with respect to the Mortgaged Property or the incurrence by us of indebtedness that is not permitted under the Amended Credit Agreement, those net cash proceeds will:

• first, be delivered to the administrative agent in order to cash collateralize all then outstanding letters of credit under the Amended Credit Agreement, until such time as the administrative agent holds cash collateral equal to 109% of the face amount of the ED Letter of Credit and 103% of the face amount of all other letters of credit, or if the ED Letter of Credit has not yet been issued when the net cash proceeds are received, to be held by the administrative agent until the issuance of the ED Letter of Credit and application of the proceeds to cash collateral; and

• second, be used to repay outstanding borrowings under the Amended Credit Agreement, which repayments will be accompanied by a corresponding pro rata reduction of the commitment of each lender under the Amended Credit Agreement.

The Fourth Amendment also implements additional restrictions on us, including, without limitation:

• the exception to the limitation on asset dispositions not otherwise permitted under the Amended Credit Agreement is reduced from $75,000 in the aggregate during the term of the Amended Credit Agreement to $5,000 in the aggregate during the period from July 30, 2014 through the remaining term of the Amended Credit Agreement, and all of those asset dispositions must be for fair market value and an adequate cash purchase consideration, as reasonably determined by the administrative agent, provided that those limitations do not apply to an asset disposition of the Mortgaged Property, if that asset disposition generates net cash proceeds of at least 75% of the appraised value of that Mortgaged Property;

• in addition to the existing limitation on sale and leaseback transactions that the net cash proceeds received therefrom may not exceed $125,000 in the aggregate during the term of the Amended Credit Agreement, any sale and leaseback transaction must be for fair market value and an adequate cash purchase consideration, as reasonably determined by the administrative agent, provided that any sale and leaseback transaction of the Mortgaged Property will be deemed to be for fair market value and an adequate cash purchase consideration, if it generates net cash proceeds of at least 75% of the appraised value of that Mortgaged Property;

• the permitted indebtedness consisting of secured indebtedness at any time outstanding (and not otherwise permitted by the Amended Credit Agreement) is reduced from $25,000 to $5,000 in aggregate principal amount; and

• permitted liens to secure indebtedness, obligations and/or liabilities at any one time outstanding (which liens are not otherwise permitted by the Amended Credit Agreement) may not secure debt in excess of $5,000 in aggregate principal amount, reduced from the original $25,000.

If any collateral is sold in a transaction permitted under the Amended Credit Agreement or is financed by indebtedness permitted under the Amended Credit Agreement, the administrative agent will release the mortgage or other security interest in that collateral.

As of December 31, 2013, the outstanding borrowings under the Amended Credit Agreement totaled $50,000 and were classified as a current liability, because we believed it was probable that we would not be in compliance with certain covenants under the Amended Credit Agreement during the 12 months following December 31, 2013.

If we are not in compliance with one or more covenants and are unable to obtain a waiver of our noncompliance or an amendment to the Amended Credit Agreement that would allow us to be in compliance with those covenants or otherwise not be in default under the Amended Credit Agreement, the lenders would have various remedies, including:

• the lending commitments under the Amended Credit Agreement may be terminated;

F - 34

• our ability to request the issuance of letters of credit and to obtain amendments, extensions or renewals of letters of credit already issued under the Amended Credit Agreement may be terminated;

• all then outstanding borrowings and other amounts owed under the Amended Credit Agreement may be declared immediately due and payable; and

• we could be required to provide cash collateral (in an amount equal to 109% of the face amount of the ED Letter of Credit and 103% of the face amount of all other letters of credit) for our obligations with respect to any outstanding letters of credit, if that cash collateral has not already been posted.

In the event that we or our subsidiary guarantor do not pay in full, upon demand, all of our outstanding borrowings and other amounts owed under the Amended Credit Agreement or we, or our subsidiary guarantor, do not provide, upon demand, the cash collateral for our letter of credit obligations, the lenders would be entitled to recourse against the collateral security, including the Mortgaged Property, that we and our subsidiary guarantor have provided, in order to obtain payment of amounts we owe or are required to provide as cash collateral.

For the period February 28, 2013 through December 31, 2013, our consolidated financial statements consolidate the PEAKS Trust. See Note 10 – Variable Interest Entities, for a further discussion of the Consolidation. In January 2010, the PEAKS Trust issued PEAKS Senior Debt in the aggregate principal amount of $300,000 to investors. The PEAKS Senior Debt matures in January 2020 and bears interest at a variable rate based on the LIBOR, plus a 550 basis point margin. The minimum LIBOR rate applied to the PEAKS Senior Debt cannot be less than 2.00%. There are no scheduled principal repayment requirements for the PEAKS Senior Debt prior to the January 2020 maturity date. Under the terms of the PEAKS Program documents, however, amounts received on a monthly basis by the PEAKS Trust that exceed the fees and expenses of the PEAKS Trust then due and the interest then due on the PEAKS Senior Debt are to be paid to reduce the outstanding principal balance of the PEAKS Senior Debt. We estimate that the amount received in 2014 by the PEAKS Trust from PEAKS Trust Student Loan borrowers that could be used to reduce the outstanding principal balance of the PEAKS Senior Debt, will not be material. The assets of the PEAKS Trust (which include, among other assets, the PEAKS Trust Student Loans) serve as collateral for, and are intended to be the principal source of, the repayment of the PEAKS Senior Debt. Payment of the PEAKS Senior Debt may be accelerated by the indenture trustee of the PEAKS Trust or by the holders of the PEAKS Senior Debt in response to certain events of default under the indenture under the PEAKS Program (the “PEAKS Indenture”), including, among other things:

• a payment default by the PEAKS Trust;

• a default in the performance or observation of the PEAKS Trust’s covenants, agreements or conditions under the PEAKS Indenture;

• a breach of our obligations under the PEAKS Guarantee; and

• certain bankruptcy events with respect to the PEAKS Trust or us.

An acceleration of the payment of the PEAKS Senior Debt would result in an acceleration of our obligation to pay the full amount of the PEAKS Senior Debt pursuant to the terms of the PEAKS Guarantee, if the PEAKS Trust was not able to make that payment (and we believe that it is unlikely that the PEAKS Trust would be able to make that payment). The acceleration of our obligation to pay the full amount of the PEAKS Senior Debt, and/or our inability to make that payment, could result in cross-defaults under the Amended Credit Agreement.

The PEAKS Trust must maintain a minimum required Asset/Liability Ratio. The minimum required Asset/Liability Ratio is 1.05/1.00. The applicable required Asset/Liability Ratio as of each monthly measurement date, however, is based on our compliance, as of the prior quarterly measurement date, with certain metrics specified in the PEAKS Program documents, including maximum leverage ratios and minimum liquidity amounts. If we are not in compliance with those metrics as of the end of a fiscal quarter, the required Asset/Liability Ratio increases to 1.40/1.00, until the monthly measurement date following the end of a succeeding quarter at which we are in compliance with those metrics. As a result of the Consolidation and other factors, we were not in compliance with those metrics as of December 31, 2013. We do not expect to be in compliance with those metrics prior to December 31, 2014.

If the amount of the assets of the PEAKS Trust does not equal or exceed the outstanding PEAKS Senior Debt by the applicable required Asset/Liability Ratio on a monthly measurement date, we are required to make a payment under the PEAKS Guarantee in an amount that would reduce the outstanding principal balance of the PEAKS Senior Debt to the extent necessary to cause the ratio of the assets of the PEAKS Trust to the resulting outstanding PEAKS Senior Debt to equal or exceed the applicable required Asset/Liability Ratio. See Note 16 – Commitments and Contingencies, for a further discussion of the PEAKS Guarantee.

F - 35

As a consequence of the restatement of our unaudited condensed consolidated financial statements in our Quarterly Reports on Form 10-Q for the fiscal quarters ended March 31, 2013, June 30, 2013 and September 30, 2013, certain quarterly reports that we were required to deliver to the indenture trustee of the PEAKS Trust under the PEAKS Guarantee were inaccurate. We delivered corrected quarterly reports to the indenture trustee on October 9, 2014. If we had delivered accurate quarterly reports or, with respect to periods in 2014 through June 30, 2014, delivered quarterly reports, to the indenture trustee of the PEAKS Trust, we believe the indenture trustee would have made payment demands beginning in April 2013, requiring us to make additional payments under the PEAKS Guarantee totaling $60,340, in the aggregate, in order to maintain an Asset/Liability Ratio of 1.40/1.00. On October 9, 2014, we made a guarantee payment of $50,000, which payment, along with other payments that we have made to the PEAKS Trust in recent months, included amounts that would have become due between April 2013 and September 2014, had we delivered accurate quarterly reports. The delivery of inaccurate quarterly reports constituted a breach of the PEAKS Guarantee and an event of default under the PEAKS Indenture. In the event of a default under the PEAKS Indenture, the payment of the entire amount of the PEAKS Senior Debt could be accelerated, which would trigger our obligation to pay the full amount of the PEAKS Senior Debt pursuant to our obligations under the PEAKS Guarantee, additional remedies could be sought against us and there could be a cross-default under the Amended Credit Agreement, any of which would have a material adverse effect on our results of operations, financial condition and cash flows. We believe that the delivery of the corrected quarterly reports and making the additional guarantee payments satisfied our obligations under the PEAKS Guarantee with respect to these matters and cured the event of default under the PEAKS Indenture. We cannot predict, however, whether the holders of the PEAKS Senior Debt will assert other breaches of the PEAKS Guarantee by us or assert that any breach of the PEAKS Guarantee or event of default under the PEAKS Indenture was not properly cured.

We estimate that we have and will make payments under the PEAKS Guarantee totaling approximately $159,500 in the year ending December 31, 2014 to cause the PEAKS Trust to maintain the applicable required Asset/Liability Ratio. That estimated amount includes the:

• $40,000 that we paid in March 2014 pursuant to the Letter Agreement, which was applied primarily to make a mandatory prepayment of the PEAKS Senior Debt (see Note 10 – Variable Interest Entities, for a further discussion of the Letter Agreement);

• payments totaling approximately $51,700 that we made from July 2014 through September 2014 to satisfy our obligations under the PEAKS Guarantee with respect to the increased minimum required Asset/Liability Ratio in prior periods; and

• $50,000 that we paid in October 2014, as described in the immediately preceding paragraph.

As of December 31, 2013, the outstanding principal balance of the PEAKS Senior Debt was approximately $255,600 and the carrying value was $229,224. We recorded $157,883 as a current liability as of December 31, 2013, which represented our estimate of the amount of the carrying value that would have been due in the 12 months following December 31, 2013 after giving consideration to the effects of the restatement, as described above. The PEAKS Senior Debt was recorded on our consolidated balance sheet as of February 28, 2013 at its estimated fair value on that date, which was approximately $226,096. The outstanding principal balance of the PEAKS Senior Debt as of February 28, 2013 was $257,533. The $31,437 difference between the estimated fair value and the outstanding principal balance of the PEAKS Senior Debt as of February 28, 2013 was recorded as an accrued discount on our consolidated balance sheet and will be recognized as Interest expense in our Consolidated Statements of Income using an effective interest rate method over the term of the PEAKS Senior Debt. The effective interest rate on the PEAKS Senior Debt was approximately 9.90% per annum in the year ended December 31, 2013. We recognized interest expense on the PEAKS Senior Debt of $21,288 in the year ended December 31, 2013, which included $4,926 of discount accretion.

The following table sets forth the estimated principal payments on the PEAKS Senior Debt in the periods indicated:

Fiscal Year	Amount
2014	$	161,219
2015	$	16,699
2016	$	7,618
2017	$	8,194
2018	$	8,909
2019 - 2020	$	51,393

14. Income Taxes

The following table sets forth the components of the provision for income taxes in the periods indicated:

	Year Ended December 31,
	2013			2012			2011
Current income tax expense:
U.S. federal	$	39,279		$	126,585		$	174,264
State and local		4,611			22,004			35,128
Total	$	43,890		$	148,589		$	209,392
Deferred income tax (benefit):
U.S. federal	($	46,345	)	($	51,145	)	($	6,718	)
State and local		(7,757	)		(8,426	)		(1,427	)
Total	($	54,102	)	($	59,571	)	($	8,145	)
Total provision (benefit) for income taxes	($	10,212	)	$	89,018		$	201,247

F - 36

We recognized approximately $298 of state income tax benefit in the year ended December 31, 2013, as a result of state operating losses.

We do not include the PEAKS Trust in our consolidated income tax returns because the PEAKS Trust is a tax-exempt entity. Therefore, we did not recognize income tax expense or benefit for the PEAKS Trust in the provision for income taxes included in our Consolidated Statement of Income for the year ended December 31, 2013. The effect of the exclusion of the PEAKS Trust from our income tax provision is shown in the reconciliation of our effective income tax rate as a percentage of income shown below.

The following table sets forth the components of our deferred income tax assets (liabilities) as of the dates indicated:

	As of December 31,
	2013			2012
Deferral of book costs	($	1,748	)	($	1,810	)
Property and equipment		(1,807	)		(6,416	)
Pension		(10,566	)		(2,712	)
Other		(1,189	)		(2,308	)
Gross deferred tax (liabilities)	($	15,310	)	($	13,246	)
Deferred revenue	$	10,902		$	14,687
Accounts receivable		3,551			6,073
Legal accrual		3,455			2,018
Compensation and benefits		3,316			1,643
Stock-based compensation		20,794			22,680
Operating leases		2,386			735
Legal settlement accrual		0			17,834
Other assets		8,356			18,772
Other contingent liabilities		108,423			30,822
Gross deferred tax assets	$	161,183		$	115,264
Net deferred income tax asset	$	145,873		$	102,018

The difference between the U.S. federal statutory income tax rate and our effective income tax rate as a percentage of income in the periods indicated is reconciled in the following table:

	Year Ended December 31,
	2013			2012			2011
U.S. federal statutory income tax rate		(35.0	%)		35.0	%		35.0	%
PEAKS Trust rate differential		11.9	%		0	%		0	%
State income taxes, net of federal benefit		(5.6	%)		3.4	%		3.9	%
Permanent book/tax differences		2.8	%		0.9	%		0.4	%
Other		(1.5	%)		(0.3	%)		0.1	%
Effective income tax rate		(27.4	%)		39.0	%		39.4	%

The following table sets forth the activity with respect to our unrecognized tax benefits in the period indicated:

	Year Ended December 31,
	2013			2012			2011
Balance as of January 1	$	20,690		$	22,050		$	22,888
Increases (decreases) from:
Tax positions taken during a prior period		1,675			195			1,042
Tax positions taken during the current period		870			759			2,434
Settlements with taxing authorities		186			(1,027	)		(2,487	)
Lapse of statute of limitations		(1,130	)		(1,287	)		(1,827	)
Balance as of December 31	$	22,291		$	20,690		$	22,050

The amount of unrecognized tax benefits that, if recognized, would have affected our effective tax rate as of December 31, 2013 was $10,575. We do not expect the amount of our unrecognized tax benefits to significantly increase or decrease during the next 12 months. The amount of interest and penalties related to unrecognized tax benefits accrued on our Consolidated Balance Sheets was $6,371 as of December 31, 2013 and $5,699 as of December 31, 2012. In each of the years ended December 31, 2013, 2012 and 2011, the amount of interest expense and penalties related to our unrecognized tax benefits that we recognized in our Consolidated Statements of Income was not material.

We file income tax returns in the United States (federal) and in various state and local jurisdictions. As of December 31, 2013, we were no longer subject to federal, state or local income tax examinations for tax years prior to 2010, except in eleven states where we are still subject to income tax examinations for tax year 2009 and one state where we are still subject to income tax examination for the tax years 2005 through 2008.

F - 37

15. Employee Benefit Plans

Employee Pension Benefits. Our ESI Pension Plan, a non-contributory defined benefit pension plan, commonly referred to as a cash balance plan, covers substantially all of our employees who began their employment with us prior to June 2, 2003. This plan provides benefits based on an employee’s annual earnings times an established percentage of pay determined by the employee’s age and years of benefit service. Effective June 2, 2003, we closed participation in the ESI Pension Plan to all new employees. Employees who begin their employment with us on or after June 2, 2003 do not participate in the ESI Pension Plan.

Our ESI Excess Pension Plan, a nonqualified, unfunded retirement plan, covers a select group of our management. The purpose of the ESI Excess Pension Plan is to restore benefits earned, but not available, to eligible employees under the ESI Pension Plan due to federal statutory limitations on the amount of benefits that can be paid and compensation that may be recognized under a tax-qualified retirement plan.

The benefit accruals under the ESI Pension Plan and the ESI Excess Pension Plan for all participants in those plans were frozen effective March 31, 2006, such that no further benefits accrue under those plans after March 31, 2006. Participants in those plans, however, continue to be credited with vesting service and interest according to the terms of the ESI Pension Plan and the ESI Excess Pension Plan.

The information presented below is based on an actuarial valuation date as of December 31 for 2013 and 2012.

The following table sets forth the change in projected benefit obligation for the periods indicated:

	Year Ended December 31,
	2013			2012
Projected benefit obligation at beginning of year	$	57,246		$	54,485
Service cost		0			0
Actuarial (gain) loss		(5,345	)		3,180
Interest cost		1,756			2,062
Benefits paid		(4,245	)		(2,481	)
Plan amendments		0			0
Projected benefit obligation at end of year	$	49,412		$	57,246
Fair value of plan assets at end of year		76,710			64,390
Funded status at end of year	$	27,298		$	7,144

Our accumulated benefit obligation was $49,412 at December 31, 2013 and $57,246 at December 31, 2012.

The following table sets forth the funded status of our defined benefit plans that was recognized on our Consolidated Balance Sheets as of the dates indicated:

	As of December 31,
	2013			2012
Non-current assets	$	27,584		$	7,459
Non-current (liabilities)		(286	)		(315	)
Total	$	27,298		$	7,144

The weighted-average assumptions used to determine benefit obligations as of December 31, 2013 and 2012 are as follows:

	2013			2012
Discount rate		4.25	%		3.25	%
Rate of compensation increase		N/A			N/A

The following table sets forth the change in the fair value of plan assets for the periods indicated:

	Year Ended December 31,
	2013			2012
Fair value of plan assets at beginning of year	$	64,390		$	58,839
Actual return on plan assets		16,565			8,032
Employer contributions		0			0
Benefits paid		(4,245	)		(2,481	)
Fair value of plan assets at end of year	$	76,710		$	64,390

F - 38

The following tables set forth the fair value of total plan assets by major asset category as of the dates indicated:

			Fair Value Measurements as of December 31, 2013
Asset Category	Total		(Level 1) Quoted Prices in Active Markets for Identical Assets		(Level 2) Significant Other Observable Inputs		(Level 3) Significant Unobservable Inputs
Cash and cash equivalents	$	934	$	934	$	0	$	0
Fixed income securities (a)		12,596		12,596		0		0
Equity securities:
Domestic large cap		40,669		40,669		0		0
Mid cap value/growth (a)		12,610		12,610		0		0
Small cap value/growth (a)		7,163		7,163		0		0
Foreign equities		2,738		2,738		0		0
Total	$	76,710	$	76,710	$	0	$	0

(a) Mutual funds.

			Fair Value Measurements as of December 31, 2012
Asset Category	Total		(Level 1) Quoted Prices in Active Markets for Identical Assets		(Level 2) Significant Other Observable Inputs		(Level 3) Significant Unobservable Inputs
Cash and cash equivalents	$	1,078	$	1,078	$	0	$	0
Fixed income securities (a)		17,318		17,318		0		0
Equity securities:
Domestic large cap		29,594		29,594		0		0
Mid cap value/growth (a)		9,090		9,090		0		0
Small cap value/growth (a)		5,137		5,137		0		0
Foreign equities		2,173		2,173		0		0
Total	$	64,390	$	64,390	$	0	$	0

(a) Mutual funds.

We used quoted prices in active markets for identical assets as of the measurement dates to value our plan assets that were categorized as Level 1.

The following table sets forth the amounts in Accumulated other comprehensive loss on our Consolidated Balance Sheets that have not been recognized as components of net periodic pension benefit cost as of the dates indicated:

	As of December 31,
	2013			2012
Net actuarial (loss)	($	546	)	($	20,191	)
Prior service credit		5,578			7,133
Total accumulated other comprehensive income (loss)	$	5,032		($	13,058	)
Income tax benefit (expense)		(1,886	)		5,128
Total accumulated other comprehensive income (loss), net of tax	$	3,146		($	7,930	)

F - 39

The following table sets forth the changes in the components of Accumulated other comprehensive loss on our Consolidated Balance Sheet in the fiscal year ended December 31, 2013:

	Defined Benefit Pension Items
	Accumulated Other Comprehensive Income (Loss)			Income Tax Benefit (Expense)			Accumulated Other Comprehensive Income (Loss) Net of Income Tax
Balance at January 1, 2013	($	13,058	)	$	5,128		($	7,930	)
Net actuarial gain		17,566			(6,811	)		10,755
Settlement gain		42			(17	)		25
Amortization of:
Actuarial (gains)/losses		2,037			(790	)		1,247
Prior service costs/(credits)		(1,555	)		604			(951	)
Balance at December 31, 2013	$	5,032		($	1,886	)	$	3,146

The reclassification of prior service costs or credits, actuarial gains or losses and settlement gain from Accumulated other comprehensive loss are included in the computation of net periodic pension benefit cost (income). Net periodic pension benefit cost (income) was included in compensation expense in Cost of educational services and Student services and administrative expenses in our Consolidated Statements of Income in the fiscal year ended December 31, 2013.

The following table sets forth the components of net periodic pension benefit (income) in the periods indicated:

	Year Ended December 31,
	2013			2012			2011
Interest cost	$	1,756		$	2,062		$	2,405
Expected return on assets		(4,344	)		(4,231	)		(4,756	)
Recognized net actuarial loss		2,037			2,718			1,803
Amortization of prior service (credit) cost		(1,555	)		(1,555	)		(1,555	)
Settlement loss		42			792			1,204
Total net periodic pension benefit (income)	($	2,064	)	($	214	)	($	899	)

The benefit accruals under the ESI Pension Plan and ESI Excess Pension Plan were frozen effective March 31, 2006. As a result, no service cost has been included in the net periodic pension benefit income.

The following table sets forth the amounts related to changes in plan assets and projected benefit obligations that were recognized in other comprehensive (income) loss in the periods indicated:

	Year Ended December 31,
	2013			2012			2011
Net actuarial (gain) loss	($	17,566	)	($	621	)	$	9,504
Amortization of net actuarial loss		(2,037	)		(2,718	)		(1,803	)
Prior service cost (credit)		0			0			0
Amortization of prior service cost (credit)		1,555			1,555			1,555
Settlement		(42	)		(792	)		(1,204	)
Other comprehensive (income) loss	($	18,090	)	($	2,576	)	$	8,052
Total recognized in net periodic pension benefit (income) and other comprehensive (income) loss	($	20,154	)	($	2,790	)	$	7,153

The amortization of any prior service cost is determined using a straight-line amortization of the cost over the average remaining service period for employees expected to receive benefits under the pension plans. The estimated net actuarial loss that is expected to be amortized from accumulated other comprehensive income and recognized in net periodic pension benefit cost for the year ended December 31, 2014 is $0 and the estimated prior service credit that is expected to be amortized from accumulated other comprehensive income and recognized in net periodic pension benefit cost for the year ended December 31, 2014 is $1,555.

The weighted-average assumptions used to determine net periodic pension benefit cost in the years ended December 31, 2013, 2012 and 2011 are as follows:

	2013			2012			2011
Discount rate		3.25	%		4.00	%		5.00	%
Expected long-term return on plan assets		7.00	%		7.50	%		8.00	%
Rate of compensation increase		N/A			N/A			N/A

F - 40

The following table sets forth the benefit payments that we expect to pay from the pension plans in the periods indicated:

Year	Amount
Fiscal 2014	$	3,576
Fiscal 2015	$	3,464
Fiscal 2016	$	4,315
Fiscal 2017	$	4,896
Fiscal 2018	$	3,538
Fiscal 2019 – 2023	$	16,838

We invest plan assets based on a total return on investment approach, pursuant to which the plan assets include a diversified blend of equity and fixed income investments toward a goal of maximizing the long-term rate of return without assuming an unreasonable level of investment risk. We determine the level of risk based on an analysis of plan liabilities, the extent to which the value of the plan assets satisfies the plan liabilities and our financial condition. Our investment policy includes target allocations ranging from 30% to 70% for equity investments, 20% to 60% for fixed income investments and 0% to 50% for cash equivalents. Actual asset allocations may vary from the targeted allocations for various reasons, including market conditions and the timing of transactions. The equity portion of the plan assets represents growth and value stocks of small, medium and large companies. We measure and monitor the investment risk of the plan assets both on a quarterly basis and annually when we assess plan liabilities.

We use a building block approach to estimate the long-term rate of return on plan assets. This approach is based on the capital market principle that the greater the volatility, the greater the return over the long term. An analysis of the historical performance of equity and fixed income investments, together with current market factors such as the inflation and interest rates, are used to help us make the assumptions necessary to estimate a long-term rate of return on plan assets. Once this estimate is made, we review the portfolio of plan assets and make adjustments thereto that we believe are necessary to reflect a diversified blend of equity and fixed income investments that is capable of achieving the estimated long-term rate of return without assuming an unreasonable level of investment risk. We also compare the portfolio of plan assets to those of other pension plans to help us assess the suitability and appropriateness of the plan investments.

We determine our discount rate by performing a yield curve analysis based on a portfolio of high-quality fixed income investments with various maturities. Our expected future benefit payments are discounted to their present value at the appropriate yield curve rate to generate the overall discount rate for pension obligations.

In 2013 and 2012, we made no contributions to the ESI Excess Pension Plan or the ESI Pension Plan. We do not expect to make any contributions to either the ESI Pension Plan or the ESI Excess Pension Plan in 2014.

Retirement Savings Plan. Our ESI 401(k) Plan, a defined contribution plan, covers substantially all of our employees. All of our contributions under the ESI 401(k) Plan are in the form of cash to plan investment options directed by the participant.

On July 1, 2013, we changed the rate at which we made contributions to the ESI 401(k) Plan on behalf of our employees. Prior to July 1, 2013, we contributed 100% of the first 1% and 50% of the next 4% of an employee’s salary that the employee contributed to his or her ESI 401(k) Plan account. Beginning July 1, 2013, we contribute 50% of the first 6% of an employee’s salary that the employee contributes to his or her ESI 401(k) Plan account.

Our ESI Excess Savings Plan, a nonqualified, unfunded deferred compensation plan, covers a select group of our management. The plan provided for salary deferral of contributions that the participants were unable to make under the ESI 401(k) Plan and our contributions that could not be paid under the ESI 401(k) Plan due to federal statutory limits on the amount that an employee could contribute under a defined contribution plan. Effective for plan years beginning on and after January 1, 2008, we froze the ESI Excess Savings Plan, such that employees may no longer make salary deferrals and we will no longer make contributions under the ESI Excess Savings Plan. Amounts previously credited to an employee under the ESI Excess Savings Plan will, however, continue to accrue interest in accordance with the terms of the ESI Excess Savings Plan, until those amounts are distributed pursuant to the plan’s terms.

The costs of providing the benefits under the ESI 401(k) Plan and ESI Excess Savings Plan (including certain administrative costs of the plans) were:

• $3,454 in the year ended December 31, 2013;

• $4,597 in the year ended December 31, 2012; and

• $5,308 in the year ended December 31, 2011.

16. Commitments and Contingencies

As part of our normal operations, one of our insurers issues surety bonds for us that are required by various education authorities that regulate us. We are obligated to reimburse our insurer for any of those surety bonds that are paid by the insurer. As of December 31, 2013, the total face amount of those surety bonds was approximately $19,300. As of December 31, 2013, we also had issued approximately $2,246 of letters of credit to our workers’ compensation insurers.

F - 41

We are also subject to various claims and contingencies, including those related to litigation, government investigations, business transactions, guarantee arrangements and employee-related matters, among others. We record a liability for those claims and contingencies, if it is probable that a loss will result and the amount of the loss can be reasonably estimated. Although we believe that our estimates related to any claims and contingencies are reasonable, we cannot make any assurances with regard to the accuracy of our estimates, and actual results could differ materially.

The following table sets forth the components of our recorded liability related to our claims and contingencies and where the amounts were included on our Consolidated Balance Sheets as of the dates indicated:

	As of December 31,
	2013		2012
PEAKS Guarantee (1)	$	0	$	47,500
2009 RSA		116,923		28,232
2007 RSA(2)		0		46,000
Other		8,957		5,246
Total	$	125,880	$	126,978
Other current liabilities	$	25,893	$	85,655
Other liabilities		99,987		41,323
Total	$	125,880	$	126,978

(1) We consolidated the PEAKS Trust in our consolidated financial statements as of February 28, 2013. See Note 10 – Variable Interest Entities, for a further discussion of the Consolidation.

(2) As defined below

Other current liabilities primarily represented our estimate of the loss that we believed we would realize during the 12- month period following the dates indicated. As of December 31, 2013, Other current liabilities included $9,091 that we claimed as an offset against amounts owed to us under the Revolving Note. See “ – Guarantees,” for a further discussion of the amounts we claimed as offsets under the Revolving Note. The amounts included in Other liabilities primarily related to our estimated contingent liabilities for the 2009 RSA as of December 31, 2013 and the PEAKS Guarantee and 2009 RSA as of December 31, 2012, and represented our estimate of the loss that we believed we would realize after the 12-month period following the dates indicated and over a period that could exceed 10 years.

The following table sets forth the activity with respect to our recorded liability related to our claims and contingencies in the periods indicated:

	Year Ended December 31,
	2013			2012
Balance as of January 1	$	126,978		$	36,028
Increases (decreases) from:
Additional accruals:
PEAKS Guarantee (1)		0			55,935
2009 RSA (2)		90,964			23,340
2007 RSA		0			21,750
Other		4,038			117
Payments, net of recoveries of $103 and $234 (3)		(2,600	)		(1,756	)
Payments under PEAKS Guarantee, net of estimated recoveries of $1,408 and $6,668		(1,005	)		(5,674	)
Payments on Behalf of Borrowers		(11,499	)		(2,762	)
Settlement payment – 2007 RSA		(46,000	)		0
Elimination of intercompany transactions (4)		11,118			0
Elimination of PEAKS Guarantee accrual (5)		(46,114	)		0
Balance as of December 31	$	125,880		$	126,978

(1) Our guarantee obligations under the PEAKS Program remain in effect until the PEAKS Senior Debt and the PEAKS Trust’s fees and expenses are paid in full. At such time, we will be entitled to repayment by the PEAKS Trust of the amount of payments we made under the PEAKS Guarantee (which do not include Payments on Behalf of Borrowers) to the extent that funds remain in the PEAKS Trust after the PEAKS Senior Debt and all fees and expenses of the PEAKS Trust have been paid in full. The PEAKS Senior Debt matures in January 2020 and, therefore, we do not expect to begin receiving any repayment of amounts that we previously paid under the PEAKS Guarantee until February 2020. The accrual related to the PEAKS Guarantee as of December 31, 2012 was recorded net of estimated recoveries, taking into consideration the present value of the estimated recoveries.

(2) This amount represents a change in our accounting estimate for the amount of our guarantee obligations under the 2009 RSA. We revised our estimate for the 2009 RSA based on an enhanced default rate methodology and more recent performance data that we obtained in the three months ended December 31, 2013. The primary enhancements and performance data included: (i) an adjustment to the default estimates for student borrowers, as a result of recently obtained actual default data for similarly-situated student borrowers; (ii) an adjustment to the default rate expectations, due to declines in repayment performance; (iii) our ability to make Discharge Payments; and (iv) a lower expectation for collections on defaulted loans as a result of the performance to date of collections.

(3) Includes payments, net of recoveries, under the 2009 RSA.

(4) We consolidated the PEAKS Trust in our consolidated financial statements as of February 28, 2013 and, as a result, we have eliminated from our consolidated financial statements the amount of payments under the PEAKS Guarantee and Payments on Behalf of Borrowers that we made following the Consolidation. See Note 10 – Variable Interest Entities, for a further discussion of the Consolidation.

(5) As a result of the Consolidation, we have eliminated from our consolidated financial statements the contingent liability related to the PEAKS Guarantee that we had previously recorded.

F - 42

We had guaranteed the repayment of private education loans made by a lender to our students in 2007 and early 2008 (the “2007 RSA”) that the lender charged off above a certain percentage of the total dollar volume of private education loans made under the 2007 RSA. In January 2013, we paid $46,000 in a settlement to absolve us from any further obligations with respect to our guarantee obligations under the 2007 RSA, which amount is included in the Settlement payment – 2007 RSA line item in the year ended December 31, 2013 in the table above. The liability for this settlement was included in Other current liabilities on our Consolidated Balance Sheet as of December 31, 2012.

In order to determine the amount of the contingent liability to record related to our guarantee obligations under the 2009 RSA and, prior to the Consolidation, the PEAKS Guarantee, we utilize estimates of, among other things, the projected repayment performance of the private education loans made under each of the 2009 Loan Program and the PEAKS Program, which projections involve numerous assumptions. Based on those projections and other factors, we estimate the amount of payments that we expect to make and the amounts that we expect to be repaid to us under those programs.

Under the 2009 RSA, we are entitled to all amounts that the 2009 Entity recovers from loans in a particular loan pool made under the 2009 Loan Program that have been charged off, until all payments that we made under the 2009 RSA with respect to that loan pool have been repaid to us by the 2009 Entity. Pursuant to the terms of the PEAKS Program documents, we will be entitled to repayment by the PEAKS Trust of the amount of payments we made under the PEAKS Guarantee (which do not include Payments on Behalf of Borrowers) to the extent that funds remain in the PEAKS Trust after the PEAKS Senior Debt and all fees and expenses of the PEAKS Trust have been paid in full. The PEAKS Senior Debt matures in January 2020 and, therefore, we do not expect to begin receiving any repayment of amounts that we previously paid under the PEAKS Guarantee until February 2020.

We discount the amounts that we expect will be repaid to us under each of the 2009 RSA and the PEAKS Program documents to reflect an imputed interest cost for the period of time between when payments are expected to be made by us and when amounts are expected to be repaid to us. The difference between the amount of the guarantee payments that we expect to make and the discounted amount that we expect will be repaid to us under each of the 2009 RSA and the PEAKS Program documents is included in our estimate of the amount of our contingent liability related to our guarantee obligations under the 2009 RSA and PEAKS Guarantee.

In connection with the change in accounting estimate of the contingent liability related to our guarantee obligations under the 2009 RSA, we also consider the payment options available to us under the 2009 Loan Program, including our ability to make Discharge Payments under the 2009 RSA. To the extent that we project that we will have sufficient funds available to make Discharge Payments under the 2009 RSA, we incorporate an assumption that we will make Discharge Payments into our estimate of the amount of payments that we expect to make when determining the contingent liability. Making Discharge Payments results in us paying a lesser amount than we otherwise would have been required to pay under our guarantee obligations in future periods under the 2009 RSA and, therefore, results in an estimated contingent liability amount that is less than if we had assumed that we would make Regular Payments in future periods.

In connection with estimating our recorded liability for claims and contingencies as of December 31, 2013 and 2012, we considered whether additional losses for claims and contingencies were reasonably possible, could be estimated and might be material to our financial condition, results of operations or cash flows. In order to estimate the possible range of losses under the PEAKS Guarantee (for the year ended December 31, 2012 only) and 2009 RSA (collectively, the “RSAs”), we made certain assumptions with respect to the performance of the private education loans made under the 2009 Loan Program and PEAKS Program over the life of those loans. The life of a private education loan made under the 2009 Loan Program or PEAKS Program may be in excess of ten years from the date of disbursement. Therefore, our estimate of the possible range of losses under the RSAs was based on assumptions for periods in excess of ten years, and those assumptions included, among other things, the following:

• the repayment performance of the private education loans made under each of the 2009 Loan Program and PEAKS Program;

• the timing and rate at which those private education loans will be paid;

• the changes in the variable interest rates applicable to the private education loans and PEAKS Senior Debt;

• the amounts and timing of collections in the future on those private education loans that have defaulted;

• the fees and expenses associated with servicing those private education loans; and

• our ability to utilize the available options for payment of our obligations under the 2009 RSA.

We consulted with third-party consumer credit consulting firms in arriving at our assumptions and estimates. The assumptions have changed, and may continue to change, significantly over time as actual results become known, which would affect our estimated range of possible losses related to the 2009 RSA. With respect to our guarantee

F - 43

obligations under the 2009 RSA, we believe that it is reasonably possible that we may incur losses in an estimated range of $11,000 less than to $28,000 greater than the liability recorded as of December 31, 2013 for those contingencies. As with any estimate, as facts and circumstances change, the recorded liability and estimated range of reasonably possible losses could change significantly. With respect to legal proceedings, we determined that we cannot provide an estimate of the possible losses, or the range of possible losses, in excess of the amount, if any, accrued, for various reasons, including but not limited to some or all of the following:

• there are significant factual issues to be resolved;

• there are novel or unsettled legal issues presented;

• the proceedings are in the early stages;

• there is uncertainty as to the likelihood of a class being certified or decertified or the ultimate size and scope of the class;

• there is uncertainty as to the outcome of pending appeals or motions; and

• in many cases, the plaintiffs have not specified damages in their complaint or in court filings.

Litigation. We are subject to various litigation in the ordinary course of our business. We cannot assure you of the ultimate outcome of any litigation involving us. Although we believe that our estimates related to any litigation are reasonable, deviations from our estimates could produce a materially different result. Any litigation alleging violations of education or consumer protection laws and/or regulations, misrepresentation, fraud or deceptive practices may also subject our affected campuses to additional regulatory scrutiny. The following is a description of pending litigation that falls outside the scope of litigation incidental to the ordinary course of our business.

On December 22, 2008, we were served with a qui tam action that was filed on July 3, 2007 in the United States District Court for the Southern District of Indiana by a former employee (“relator”) on behalf of herself and the federal government under the following caption: United States of America ex rel. Debra Leveski v. ITT Educational Services, Inc. (the “Leveski Litigation”). We were served with the Leveski Litigation after the U.S. Department of Justice declined to intervene in the litigation. On June 3, 2008, the relator filed an amended complaint in the Leveski Litigation. On September 23, 2009, the court dismissed the Leveski Litigation without prejudice and gave the relator an opportunity to replead her complaint. On October 8, 2009, the relator filed a second amended complaint. In the second amended complaint, the relator alleges that we violated the False Claims Act, 31 U.S.C. § 3729, et seq., and the HEA by compensating our sales representatives and financial aid administrators with commissions, bonuses or other incentive payments based directly or indirectly on success in securing enrollments or federal financial aid. The relator alleges that all of our revenue derived from the federal student financial aid programs from July 3, 2001 through July 3, 2007 was generated as a result of our violating the HEA. The relator seeks various forms of recovery on behalf of herself and the federal government, including:

• treble the amount of unspecified funds paid to us for federal student grants;

• treble the amount of unspecified default payments, special allowance payments and interest received by lenders with respect to federal student loans received by our students;

• all civil penalties allowed by law; and

• attorney’s fees and costs.

A qui tam action is a civil lawsuit brought by one or more individuals (a qui tam “relator”) on behalf of the federal or state government for an alleged submission to the government of a false claim for payment. A qui tam action is always filed under seal and remains under seal, until the government decides whether to intervene in the litigation. Whenever a relator files a qui tam action, the government typically initiates an investigation in order to determine whether to intervene in the litigation. If the government intervenes, it has primary control over the litigation. If the government declines to intervene, the relator may pursue the litigation on behalf of the government. If the government or the relator is successful in the litigation, the relator receives a portion of the government’s recovery.

On August 8, 2011, the district court granted our motion to dismiss all of the relator’s claims in the Leveski Litigation for lack of subject-matter jurisdiction and issued a judgment for us. On February 16, 2012, the relator in the Leveski Litigation filed a Notice of Appeal with the 7^th Circuit Court of Appeals regarding the final judgment entered by the district court dismissing all claims against us. On March 26, 2012, the district court in the Leveski Litigation awarded us approximately $395 in sanctions against the relator’s attorneys for filing a frivolous lawsuit. Relator’s attorneys also appealed this award to the 7^th Circuit Court of Appeals. On July 8, 2013, the 7^th Circuit Court of Appeals reversed the district court’s dismissal of the Leveski Litigation for lack of subject-matter jurisdiction and the award of sanctions against relator’s attorneys. In addition, the 7^th Circuit Court of Appeals remanded the Leveski Litigation back to the district court for further proceedings.

We have defended, and intend to continue to defend, ourselves vigorously against the allegations made in the complaint.

On March 11, 2013, a complaint in a securities class action lawsuit was filed against us and two of our current executive officers in the United States District Court for the Southern District of New York under the caption:

F - 44

William Koetsch, Individually and on Behalf of All Others Similarly Situated v. ITT Educational Services, Inc., et al. (the “Koetsch Litigation”). On April 17, 2013, a second complaint in a securities class action lawsuit was filed against us and two of our current executive officers in the United States District Court for the Southern District of New York under the caption: Massachusetts Laborers’ Annuity Fund, Individually and on Behalf of All Others Similarly Situated v. ITT Educational Services, Inc., et al. (the “MLAF Litigation”). On July 25, 2013, the court consolidated the Koetsch Litigation and the MLAF Litigation under the caption: In re ITT Educational Services, Inc. Securities Litigation (the “Securities Litigation”) and named the Plumbers and Pipefitters National Pension Fund and Metropolitan Water Reclamation District Retirement Fund as the lead plaintiffs. On October 7, 2013, an amended complaint was filed in the Securities Litigation, and on January 15, 2014, a second amended complaint was filed in the Securities Litigation. The second amended complaint alleges, among other things, that the defendants violated Sections 10(b) and 20(a) of the Exchange Act and Rule 10b-5 promulgated thereunder by:

• our failure to properly account for the 2007 RSA, 2009 RSA and PEAKS Program;

• employing devices, schemes and artifices to defraud;

• making untrue statements of material facts, or omitting material facts necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading;

• making the above statements intentionally or with reckless disregard for the truth;

• engaging in acts, practices, and a course of business that operated as a fraud or deceit upon lead plaintiffs and others similarly situated in connection with their purchases of our common stock;

• deceiving the investing public, including lead plaintiffs and the purported class, regarding, among other things, our artificially inflated statements of financial strength and understated liabilities; and

• causing our common stock to trade at artificially inflated prices and causing the plaintiff and other putative class members to purchase our common stock at inflated prices.

The putative class period in this action is from April 24, 2008 through February 25, 2013. The plaintiffs seek, among other things, the designation of this action as a class action, an award of unspecified compensatory damages, interest, costs and expenses, including counsel fees and expert fees, and such equitable/injunctive and other relief as the court deems appropriate. On July 22, 2014, the district court denied most of our motion to dismiss all of the plaintiffs’ claims for failure to state a claim for which relief can be granted. On August 5, 2014, we filed our answer to the second amended complaint denying all of the plaintiffs’ claims. All of the defendants have defended, and intend to continue to defend, themselves vigorously against the allegations made in the second amended complaint.

On September 30, 2014, a complaint in a securities class action lawsuit was filed against us and two of our current executive officers in the United States District Court for the Southern District of Indiana under the caption: David Banes, Individually and on Behalf of All Others Similarly Situated v. Kevin M. Modany, et al. (the “Banes Litigation”). The complaint alleges, among other things, that the defendants violated Sections 10(b) and 20(a) of the Exchange Act and Rule 10b-5 promulgated thereunder by:

• misleading investors regarding the integrity of our financial reporting, including the reporting of the PEAKS Trust;

• knowingly or recklessly making materially false and/or misleading statements and/or failing to disclose material adverse facts about our business operations and prospects, including that:

• our financial statements contained errors related to the accounting of the PEAKS Trust and the PEAKS Program; and

• we lacked adequate internal controls over financial reporting;

• knowingly or recklessly engaging in acts, transactions, practices, and courses of business that operated as a fraud or deceit upon the plaintiff and the purported class;

• employing devices, schemes and artifices to defraud in connection with the purchase and sale of our common stock;

• deceiving the investing public, including the plaintiff and the purported class; and

• artificially inflating and maintaining the market price of our common stock and causing the plaintiff and other putative class members to purchase our common stock at artificially inflated prices.

The putative class period in this action is from April 26, 2013 through September 19, 2014. The plaintiffs seek, among other things, the designation of this action as a class action, an award of unspecified damages, interest, costs and expenses, including counsel fees and expert fees, and such other relief as the court deems proper. All of the defendants intend to defend themselves vigorously against the allegations made in the complaint.

On October 3, 2014, a complaint in a securities class action lawsuit was filed against us and two of our current executive officers in the United States District Court for the Southern District of Indiana under the caption: Babulal Tarapara, Individually and on Behalf of All Others Similarly Situated v. ITT Educational Services, Inc., et al. (the “Tarapara Litigation”). The complaint alleges, among other things, that the defendants violated Sections 10(b) and 20(a) of the Exchange Act and Rule 10b-5 promulgated thereunder by knowingly or recklessly making false and/or misleading statements and failing to disclose material adverse facts about our business, operations, prospects and financial results. In particular, the complaint alleges that:

• we failed to consolidate the PEAKS Trust in our consolidated financial statements;

F - 45

• our consolidated financial statements contained errors related to the accounting of the PEAKS Trust and PEAKS Program;

• we improperly accounted for our guarantee obligations under the PEAKS Guarantee;

• our financial results were overstated;

• we lacked adequate internal and financial controls;

• our consolidated financial statements were materially false and misleading at all relevant times;

• we artificially inflated and maintained the market price of our common stock, causing the plaintiff and other putative class members to purchase our common stock at artificially inflated prices;

• we deceived the investing public, including the plaintiff and the purported class; and

• we employed devices, schemes and artifices to defraud in connection with the purchase and sale of our common stock.

The putative class period in this action is from February 26, 2013 through September 18, 2014. The plaintiffs seek, among other things:

• the designation of this action as a class action;

• an award of unspecified compensatory damages, including interest;

• an award of reasonable costs and expenses, including counsel fees and expert fees; and

• such other relief as the court deems proper.

All of the defendants intend to defend themselves vigorously against the allegations made in the complaint.

On October 9, 2014, a complaint in a securities class action lawsuit was filed against us and two of our current executive officers in the United States District Court for the Southern District of Indiana under the caption: Kumud Jindal, Individually and on Behalf of All Others Similarly Situated v. Kevin M. Modany, et al. (the “Jindal Litigation”). The complaint alleges, among other things, that the defendants violated Sections 10(b) and 20(a) of the Exchange Act and Rule 10b-5 promulgated thereunder by knowingly or recklessly making false and/or misleading statements and failing to disclose material adverse facts about our business, operations, prospects and financial results. In particular, the complaint alleges that:

• our financial statements contained errors related to the accounting of the PEAKS Trust and PEAKS Program;

• we lacked adequate internal controls over financial reporting;

• our financial statements were materially false and misleading at all relevant times;

• we engaged in acts, transactions, practices and courses of business which operated as a fraud and deceit upon plaintiff and the purported class;

• we employed devices, schemes and artifices to defraud in connection with the purchase and sale of our common stock; and

• we artificially inflated and maintained the market price of our common stock, causing the plaintiff and other putative class members to purchase our common stock at artificially inflated prices.

The putative class period in this action is from April 26, 2013 through September 19, 2014. The plaintiffs seek, among other things, the designation of this action as a class action, an award of unspecified damages, interest, attorneys’ fees, expert fees and other costs, and such other relief as the court deems proper. All of the defendants intend to defend themselves vigorously against the allegations made in the complaint.

        On May 8, 2013, a complaint in a shareholder derivative lawsuit was filed against two of our current executive officers and all of our current Directors in the United States District Court for the Southern District of New York under the following caption: Sasha Wilfred, Derivatively on Behalf of Nominal Defendant ITT Educational Services, Inc. v. Kevin M. Modany, et al. (the “Wilfred Litigation”). The complaint alleges, among other things, that from April 24, 2008 through February 25, 2013, the defendants violated state law, including breaching their fiduciary duties to us, grossly mismanaging us, wasting our corporate assets and being unjustly enriched, by:

• causing or allowing us to disseminate to our shareholders materially misleading and inaccurate information relating to a series of risk-sharing agreements through SEC filings, press releases, conference calls, and other public statements and disclosures;

• willfully ignoring obvious and pervasive problems with our internal controls and practices and procedures, and failing to make a good faith effort to correct these problems or prevent their recurrence;

• violating and breaching fiduciary duties of care, loyalty, reasonable inquiry, oversight, good faith and supervision;

• causing or allowing us to misrepresent material facts regarding our financial position and business prospects; and

• abandoning their responsibilities and duties with regard to prudently managing our businesses in a manner imposed upon them by law.

The complaint seeks:

• unspecified damages;

• restitution;

• disgorgement of all profits, benefits and other compensation obtained by the individual defendants;

• an order directing us to take all necessary actions to reform and improve our corporate governance and internal procedures; and

• costs and disbursements, including attorneys’, accountants’ and experts’ fees, costs and expenses.

On August 6, 2013, the parties agreed to stay the Wilfred Litigation, until the Securities Litigation was dismissed with prejudice or the defendants filed an answer in the Securities Litigation. On September 8, 2014, the district court approved the parties’ agreement for an additional stay of the Wilfred Litigation, until the earlier of:

• a final disposition of the Securities Litigation; or

• 30 days after written notice terminating the stay has been provided by any of the parties in the Wilfred Litigation to all other parties.

On May 27, 2014, a complaint in a shareholder derivative lawsuit was filed against two of our current executive officers, all of our current Directors and one former Director in the United States District Court for the District of Delaware under the following caption: Janice Nottenkamper, Derivatively on Behalf of Nominal Defendant ITT Educational Services, Inc. v. Kevin M. Modany, et al. (the “Nottenkamper Litigation”). The complaint alleges, among other things, that from 2008 to May 27, 2014, the defendants engaged in illicit conduct, made false and misleading statements, concealed the truth and failed to disclose material information concerning:

• our exposure under guarantees entered into with third-party lenders to obtain financing for our students;

F - 46

• increases in our bad debt expense caused by increases in student loan defaults;

• our reserves associated with our obligations under third-party private education loan programs and internal student financing;

• the unwillingness of third-party lenders to provide private education loans to our students; and

• our pushing students into high-cost private loans that were likely to default.

As a result of this conduct, the complaint alleges that the defendants breached their fiduciary duties to us, were unjustly enriched, abused their control of us and grossly mismanaged us by:

• causing or allowing us to disseminate to our shareholders materially misleading and inaccurate information relating to a series of risk-sharing agreements through SEC filings, press releases, conference calls, and other public statements and disclosures;

• willfully ignoring obvious and pervasive problems with our internal controls and practices and procedures, and failing to make a good faith effort to correct these problems or prevent their recurrence;

• violating and breaching fiduciary duties of care, loyalty, good faith, diligence and candor;

• causing or allowing us to misrepresent material facts regarding our financial position and business prospects; and

• abandoning and abdicating their responsibilities and duties with regard to prudently managing our businesses in a manner imposed upon them by law.

The complaint seeks:

• unspecified damages;

• restitution;

• disgorgement of all profits, benefits and other compensation obtained by the individual defendants;

• an order directing us to take all necessary actions to reform and improve our corporate governance and internal procedures; and

• costs and disbursements, including attorneys’, accountants’ and experts’ fees, costs and expenses.

Although the Wilfred Litigation and Nottenkamper Litigation are each brought nominally on behalf of us, we expect to incur defense costs and other expenses in connection with those actions.

On May 18, 2012, we received a Civil Investigative Demand (the “Original CID”) from the U.S. Consumer Financial Protection Bureau (the “CFPB”). In September 2013, the CFPB withdrew the Original CID and we received a new Civil Investigative Demand (the “New CID”) from the CFPB. Both the Original CID and the New CID provided that the purpose of the CFPB’s investigation was, in part, “to determine whether for-profit post-secondary companies, student loan origination and servicing providers, or other unnamed persons have engaged or are engaging in unlawful acts or practices relating to the advertising, marketing, or origination of private student loans.” Both the Original CID and the New CID contained broad requests for oral testimony, production of documents and written reports related to private education loans made to our students, internal financing provided to our students and certain other aspects of our business. We provided documentation and other information to the CFPB, while preserving our rights to object to its inquiry.

On February 26, 2014, the CFPB filed a complaint against us in the United States District Court for the Southern District of Indiana under the following caption: Consumer Financial Protection Bureau v. ITT Educational Services, Inc. (the “CFPB Litigation”). The complaint alleges, among other things, that we violated:

• Section 1036(a)(1) of the Consumer Financial Protection Act of 2010 (the “CFPA”), 12 U.S.C. §5536(a)(1), which prohibits unfair, deceptive and abusive acts and practices, from July 21, 2011 through December 2011, by:

• subjecting consumers to undue influence or coercing them into taking out private education loans through a variety of unfair acts and practices designed to interfere with the consumers’ ability to make informed, uncoerced choices;

• taking unreasonable advantage of consumers’ inability to protect their interest in selecting or using the private education loans; and

• taking unreasonable advantage of consumers’ reasonable reliance on us to act in the consumers’ interests; and

• the Truth in Lending Act, 15 U.S.C. §§ 1601 et seq., and Regulation Z thereunder, 12 C.F.R. Part 1026, which require certain disclosures to be made in writing to consumers in connection with the extension of consumer credit, since March 2009 by failing to disclose a discount that constituted a finance charge.

On April 28, 2014, we filed a motion to dismiss the CFPB Litigation for, among other reasons, lack of jurisdiction and failure to state a claim upon which relief can be granted. We have defended, and intend to continue to defend, ourselves vigorously against the allegations made in the complaint.

F - 47

On February 27, 2014, the New Mexico Attorney General filed a complaint against us in the District Court of New Mexico under the following caption: State of New Mexico, ex rel. Gary K King, Attorney General v. ITT Educational Services, Inc., et al. (the “New Mexico Litigation”). On April 4, 2014, we removed the New Mexico Litigation to the U.S. District Court for the District of New Mexico. The complaint alleges, among other things, that we engaged in a pattern and practice of exploiting New Mexico consumers by using deceptive, unfair, unconscionable and unlawful business practices in the marketing, sale, provision and financing of education goods and services in violation of New Mexico’s Unfair Practices Act. In particular, the complaint contains allegations that:

• we misrepresented matters related to our nursing education program, including, without limitation, its programmatic accreditation status, the transferability of credits earned in the program and the curriculum of the program;

• we misrepresented the terms of the financial aid available to students and the cost of our programs;

• we engaged in unfair or deceptive trade practices;

• we failed to issue refunds; and

• our form enrollment agreement contained unenforceable and unconscionable provisions.

The complaint seeks:

• an order declaring portions of our enrollment agreement illusory, unconscionable and unenforceable;

• preliminary and permanent injunctive relief;

• disgorgement of unjust enrichment amounts;

• unspecified civil penalty amounts;

• restitution; and

• reasonable costs, including investigative costs.

We have defended, and intend to continue to defend, ourselves vigorously against the allegations made in the complaint.

On December 17, 2013, a complaint was filed against us in a purported class action in the Superior Court of the State of California for the County of Los Angeles under the following caption: La Sondra Gallien, an individual, James Rayonez, an individual, Giovanni Chilin, an individual, on behalf of themselves and on behalf of all persons similarly situated v. ITT Educational Services, Inc., et al. (the “Gallien Litigation”). The plaintiffs filed an amended complaint on February 13, 2014. The amended complaint alleges, among other things, that under California law, we:

• failed to pay wages owed;

• failed to pay overtime compensation;

• failed to provide meal and rest periods;

• failed to provide itemized employee wage statements;

• engaged in unlawful business practices; and

• are liable for civil penalties under the California Private Attorney General Act.

The purported class includes recruiting representatives employed by us during the period of December 17, 2009 through December 17, 2013. The amended complaint seeks:

• compensatory damages, including lost wages and other losses;

• general damages;

• pay for missed meal and rest periods;

• restitution;

• liquidated damages;

• statutory penalties;

• interest;

• attorneys’ fees, cost and expenses;

• civil and statutory penalties;

• injunctive relief; and

• such other and further relief as the court may deem equitable and appropriate.

We have defended, and intend to continue to defend, ourselves vigorously against the allegations made in the amended complaint.

There can be no assurance that the ultimate outcome of the Leveski Litigation, Securities Litigation, Banes Litigation, Tarapara Litigation, Jindal Litigation, Wilfred Litigation, Nottenkamper Litigation, CFPB Litigation, New Mexico Litigation, Gallien Litigation or other actions (including other actions under federal or state securities laws) will not have a material adverse effect on our financial condition, results of operations or cash flows.

The current officers named in the Securities Litigation, Banes Litigation, Tarapara Litigation, Jindal Litigation, Wilfred Litigation and Nottenkamper Litigation include Daniel M. Fitzpatrick and Kevin M. Modany.

F - 48

Certain of our current and former officers and Directors are or may become a party in the actions described above and/or are or may become subject to government investigations. Our By-laws and Restated Certificate of Incorporation obligate us to indemnify our officers and Directors to the fullest extent permitted by Delaware law, provided that their conduct complied with certain requirements. We are obligated to advance defense costs to our officers and Directors, subject to the individual’s obligation to repay such amount if it is ultimately determined that the individual was not entitled to indemnification. In addition, our indemnity obligation can, under certain circumstances, include indemnifiable judgments, penalties, fines and amounts paid in settlement in connection with those actions and investigations.

Government Investigations. We are subject to investigations and claims of non-compliance with regulatory standards and other actions brought by regulatory agencies. Some of the more significant pending investigations, claims and actions are described below. If the results of any investigations, claims and/or actions are unfavorable to us, we may be required to pay money damages or be subject to fines, penalties, injunctions, operational limitations, loss of eligibility to participate in federal or state financial aid programs, debarments, additional oversight and reporting, or other civil and criminal sanctions. Those sanctions could have a material adverse effect on our financial condition, results of operations and cash flows.

On October 30, 2012, we received a Civil Investigative Demand (“CID”) from the Massachusetts Office of the Attorney General (“MAG”). The MAG’s CID provides that the MAG is investigating allegations that we may have violated Massachusetts General Laws, Chapter 93A, Section 2(a) by “engaging in unfair or deceptive practices in connection with marketing and advertising job placement and student outcomes, the recruitment of students, and the financing of education.” The MAG’s CID contains broad requests for production of documents related to our students in Massachusetts, including the financial aid available to those students, our recruitment of those students, the career services that we offer to those students, our marketing and advertising, the retention and graduation rates of those students and many other aspects of our business. We are cooperating with the MAG in its investigation, and we have provided documentation, communications and other information to the MAG in response to the CID. We believe that our acts and practices relating to our students in Massachusetts are lawful. There can be no assurance, however, that the ultimate outcome of the MAG investigation will not have a material adverse effect on our financial condition, results of operations and/or cash flows.

In January, February, April and May 2014, we received subpoenas and/or CIDs from the Attorneys General of Arkansas, Arizona, Colorado, Connecticut, Hawaii, Idaho, Iowa, Kentucky, Missouri, Nebraska, North Carolina, Oregon, Pennsylvania, Tennessee and Washington under the authority of each state’s consumer protection statutes. The Attorney General of the Commonwealth of Kentucky has informed us that it will serve as the point of contact for the multistate group to respond to questions relating to the subpoenas and CIDs. The subpoenas and CIDs contain broad requests for information and the production of documents related to our students and practices, including marketing and advertising, recruitment, financial aid, academic advising, career services, admissions, programs, licensure exam pass rates, accreditation, student retention, graduation rates and job placement rates, as well as many other aspects of our business. We believe that several other companies in the proprietary postsecondary education sector have received similar subpoenas and CIDs. We are cooperating with the Attorneys General of the states involved. There can be no assurance, however, that the ultimate outcome of the state Attorneys General investigation will not have a material adverse effect on our financial condition, results of operations and/or cash flows.

On February 8, 2013, we received the first of many subpoenas from the SEC. In a letter accompanying each of the subpoenas, the SEC states that it is conducting an investigation of us. The SEC’s subpoenas requested the production of documents and communications that, among other things, relate to our actions and accounting associated with:

• agreements that we entered into with the 2009 Entity to create the 2009 Loan Program, including, without limitation, the 2009 RSA;

• agreements that we entered into to create the PEAKS Program;

• certain accounting-related documents associated with the 2009 Loan Program, the PEAKS Program and internal student financing; and

• our board of directors-related materials associated with the 2009 Loan Program, the PEAKS Program and internal student financing.

F - 49

We have provided the information requested, including testimony of senior employees. On August 7, 2014, we received a “Wells Notice” from the Staff of the SEC notifying us that the Staff had made a preliminary determination to recommend that the SEC file an enforcement action against us. According to the Staff, the enforcement action would allege violations of Sections 10(b), 13(a) and 13(b)(2) of the Exchange Act and Rules 10b-5, 12b-20, 13a-1, 13a-11, 13a-13 and 13a-15 under the Exchange Act. The proposed action relates primarily to certain disclosures and accounting surrounding the two loan programs noted above. The SEC’s notice said that the Staff’s recommendation may:

• involve a civil injunctive action, public administrative proceeding and/or cease-and-desist proceeding against us; and

• seek remedies that include an injunction, a cease-and-desist order and monetary relief, including civil monetary penalties.

A Wells Notice is neither a formal allegation nor a finding of wrongdoing. Instead, it is a preliminary determination by the Staff to recommend that the SEC file a civil enforcement action or administrative proceeding against the recipient. Under the SEC’s procedures, a recipient of a Wells Notice has an opportunity to respond in the form of a Wells submission that seeks to persuade the SEC that such an action should not be brought. Accordingly, we made a submission to the Staff in response to the Wells Notice setting forth why the factual record does not support the enforcement action recommended by the Staff and that any perceived shortcomings were made in good faith. Although we intend to defend ourselves vigorously should the SEC authorize any legal action that does not comport with our view of the facts, we cannot predict the outcome of any legal action or whether the matters will result in any settlement. We cannot assure you that the ultimate outcome of the SEC investigation, any legal action by the SEC or any settlement will not have a material adverse effect on our financial condition, results of operations and/or cash flows.

Lease Commitments. We lease our non-owned facilities under operating lease agreements. A majority of the operating leases contain renewal options that can be exercised after the initial lease term. Renewal options are generally for periods of one to five years. All operating leases will expire over the next 10 years and we expect that:

• most of those leases will be renewed or replaced by other leases in the normal course of business;

• we may purchase the facilities represented by those leases; or

• we may purchase or build other replacement facilities.

There are no material restrictions imposed by the lease agreements, and we have not entered into any significant guarantees related to the leases. We are required to make additional payments under the operating lease terms for taxes, insurance and other operating expenses incurred during the operating lease period.

Rent expense under our operating leases was:

• $53,212 in the year ended December 31, 2013;

• $50,817 in the year ended December 31, 2012; and

• $47,833 in the year ended December 31, 2011.

Future minimum rental payments required under our operating leases that have initial or remaining non-cancelable lease terms in excess of one year as of December 31, 2013 are as follows:

2014	$	44,714
2015		38,582
2016		27,939
2017		19,084
2018		13,282
2019 and thereafter		12,446
	$	156,047

Future minimum rental payments related to equipment leases are not significant.

Guarantees. We entered into the PEAKS Guarantee in connection with the PEAKS Program and the 2009 RSA in connection with the 2009 Loan Program. Under the PEAKS Guarantee, we guarantee payment of the principal and interest owed on the PEAKS Senior Debt, the administrative fees and expenses of the PEAKS Trust and a minimum required Asset/Liability Ratio. The PEAKS Guarantee contains, among other things, representations and warranties and events of default that we believe are customary for guarantees of this type. In addition, under the PEAKS Program, some or all of the holders of the PEAKS Senior Debt could require us to purchase their PEAKS Senior Debt, if the law is changed to reduce the maximum allowable percentage of our annual revenue derived from Title IV Program funds from 90% to 75% or less. At this time, we believe that the likelihood of such a change in the law is remote. Our guarantee and purchase obligations under the PEAKS Program remain in effect until the PEAKS Senior Debt and the PEAKS Trust’s fees and expenses are paid in full. At such time, we will be entitled to repayment of the amount of any payments we made under the PEAKS Guarantee (which do not include Payments on Behalf of Borrowers) to the extent that funds are remaining in the PEAKS Trust. As of December 31, 2012, the amount of payments that we had previously made under the PEAKS Guarantee and that we expected to recover was $12,342. We recorded this amount, net of an accrued discount of $5,674, in Other assets on our Consolidated Balance Sheet as if December 31, 2012.

F - 50

We concluded that we were required to consolidate the PEAKS Trust in our consolidated financial statements beginning on February 28, 2013. See Note 10 – Variable Interest Entities, for a further discussion of the Consolidation. As a result, the assets and liabilities of the PEAKS Trust have been included on, and all intercompany transactions have been eliminated from, our Consolidated Balance Sheet as of December 31, 2013. While we no longer record a contingent liability for the PEAKS Guarantee on our Consolidated Balance Sheet beginning on February 28, 2013, our obligations under the PEAKS Guarantee remain in effect.

We entered into the 2009 RSA in connection with the 2009 Loan Program. Under the 2009 RSA, we guarantee the repayment of the principal amount (including capitalized origination fees) and accrued interest payable on any private education loans that are charged off above a certain percentage of the private education loans made under the 2009 Loan Program, based on the annual dollar volume. The total initial principal amount of private education loans that the 2009 Entity purchased under the 2009 Loan Program was approximately $141,000. No new private education loans were or will be originated under the 2009 Loan Program after December 31, 2011, but immaterial amounts related to loans originated prior to that date were disbursed by the lender through June 2012. Our obligations under the 2009 RSA will remain in effect, until all private education loans made under the 2009 Loan Program are paid in full or charged off. The standard repayment term for a private education loan made under the 2009 Loan Program is ten years, with repayment generally beginning six months after a student graduates or three months after a student withdraws or is terminated from his or her program of study.

Under the 2009 RSA, we have the right to elect to make Discharge Payments with respect to private education loans made under the 2009 Loan Program that have been charged off. The effect of a making a Discharge Payment related to a private education loan is to reduce the aggregate amount that we may have to pay under our guarantee obligations with respect to that loan. We have claimed as an offset against the Revolving Note amounts that would have the effect of discharging our obligations with respect to certain charged off loans under the 2009 RSA. In addition, in the three months ended December 31, 2013, we made Discharge Payments to the 2009 Entity. We may continue to make Discharge Payments in future periods, if we believe that doing so would be economically beneficial to us. Making Discharge Payments may result in us paying amounts to the 2009 Entity in advance of when a guarantee payment would be due, which would negatively impact our liquidity in a particular period, but may result in us paying a lesser amount than we otherwise would have been required to pay under our guarantee obligation in future periods under the 2009 RSA. See Note 10 – Variable Interest Entities, for a further discussion of Discharge Payments.

We are not able to estimate the undiscounted maximum potential amount of future payments that we could be required to make under the 2009 RSA, because those payments will be affected by:

• the timing of future defaults;

• the use, timing and length of forbearances granted to borrowers;

• of the use, timing and length of deferral periods;

• changes in the interest rate on the loans made under the 2009 Loan Program, since those loans are based on the prime rate plus a margin; and

• the fact that those loans will consist of a large number of loans of individually immaterial amounts.

We believe that it is probable that we will make additional payments under the 2009 RSA. The following table sets forth the estimated amount of Regular Payments and Discharge Payments that we expect to pay and the estimated amount of recoveries from charged-off loans that we expect to be paid to us by the 2009 Entity in the periods indicated:

Year	Estimated Regular Payments		Estimated Discharge Payments		Estimated Total Payments		Estimated Recoveries
2014	$	9,009	$	0	$	9,009	$	(1,011	)
2015		14,251		0		14,251		(1,200	)
2016		16,060		0		16,060		(1,200	)
2017		16,333		0		16,333		(1,200	)
2018 and later		0		75,194		75,194		(300	)
	$	55,653	$	75,194	$	130,847	$	(4,911	)

We believe that the vast majority of the $75,194 of estimated payments projected to be paid after 2017 will be made by us in 2018. The estimated future payment amounts and timing related to the 2009 RSA assume, among other factors, that we do not make any Discharge Payments until 2018 and do make Discharge Payments to the fullest extent

F - 51

possible in 2018 and later years. If we do not make the Discharge Payments as assumed in 2018 and later years, we estimate that we would make approximately $97,400 of Regular Payments in 2018 through 2027. Of this amount, approximately $15,100 to $16,400 would be paid annually in each of 2018 through 2022, and approximately $16,600, in the aggregate, would be paid in 2023 through 2027.

The amounts of the estimated Regular Payments and the estimated recoveries were discounted at a risk-free rate of interest in determining our contingent liability for the 2009 RSA. The total amount of the discount as of December 31, 2013 was approximately $9,015.

The estimated future payment amounts, the estimated timing of those payments and the estimated amount of recoveries with respect to the RSAs discussed above and elsewhere in this Annual Report on Form 10-K are only estimates, are based on numerous assumptions and are subject to change. As with any estimate, as facts and circumstances change, the estimated amounts and timing could change. We made a number of assumptions in preparing the estimates, which assumptions may not be correct. The assumptions included, among other things, the following:

• the repayment performance of the private education loans made under the 2009 Loan Program or PEAKS Program, as applicable;

• the timing and rate at which those private education loans will be paid;

• the changes in the variable interest rates applicable to those private education loans and, with respect to the PEAKS Program, the PEAKS Senior Debt;

• the amounts and timing of collections in the future on those private education loans that have been charged off;

• the fees and expenses associated with servicing those private education loans; and

• our ability to utilize the available options for payment of our obligations under the 2009 RSA.

Pursuant to the 2009 RSA, we are required to maintain collateral to secure our guarantee obligation in an amount equal to a percentage of the outstanding balance of the private education loans disbursed to our students under the 2009 Loan Program. As of December 31, 2013 and December 31, 2012, the total collateral maintained in a restricted bank account was approximately $8,600. This amount was included in Other assets on our Consolidated Balance Sheets as of each of those dates. The 2009 RSA also requires that we comply with certain covenants, including that we maintain certain financial ratios which are measured on a quarterly basis and deliver compliance certificates on a quarterly basis setting forth the status of our compliance with those financial ratios. If we are not in compliance with those covenants at the end of each fiscal quarter, we are required to increase the amount of collateral maintained in the restricted bank account to a predetermined amount, until the end of a succeeding quarter at which we are in compliance with those covenants. The predetermined amount is based on the percentage of the aggregate principal balance of the private education loans made under the 2009 Loan Program that exceeds a certain percentage as of the end of each fiscal quarter. We were not in compliance with those covenants as of December 31, 2013.

As a consequence of the restatement of our unaudited condensed consolidated financial statements in our Quarterly Reports on Form 10-Q for the fiscal quarters ended March 31, 2013, June 30, 2013 and September 30, 2013, certain quarterly compliance certificates that we were required to deliver to the 2009 Entity under the 2009 RSA were inaccurate. Those inaccuracies did not affect our compliance with the financial ratio covenants in the 2009 RSA as of March 31, 2013. We were not, however, in compliance with the financial ratio covenants in the 2009 RSA as of June 30, 2013 and subsequent measurement dates. Further, due to our failure to timely file our Annual Report on Form 10-K for the fiscal year ended December 31, 2013 and our Quarterly Reports on Form 10-Q for the fiscal quarters ended March 31, 2014 and June 30, 2014, we did not timely deliver the required compliance certificates under the 2009 RSA with respect to those periods. As a result of our noncompliance with the financial ratio covenants as of June 30, 2013 and subsequent measurement dates, the amount of collateral required to be maintained in the restricted bank account has been increased by approximately $2,600. We intend to make in October 2014 a deposit in that amount to the restricted bank account to be held as additional collateral under the 2009 RSA.

F - 52

The following table sets forth the approximate aggregate amount of guarantee payments, Discharge Payments and Payments on Behalf of Borrowers that were made related to the PEAKS Program and 2009 RSA and the amount of recoveries from charged-off loans paid to us by the 2009 Entity, in the periods indicated:

	January 1, 2013 Through February 28, 2013(1)(2)		March 1, 2013 Through December 31, 2013(1)(2)		Total Year Ended December 31, 2013			Year Ended December 31, 2012
Type of Payment (Receipt)
Guarantee:
PEAKS Program	$	854	$	1,559	$	2,413		$	12,342
2009 RSA Regular Payments		0		0		1,791			1,990
2009 RSA Discharge Payments		0		0		912			0
Payments on Behalf of Borrowers		532		10,967		11,499			2,762
2009 RSA-Recoveries from Charged-Off Loans		0		0		(103	)		(234	)
Total	$	1,386	$	12,526	$	16,512		$	16,860

(1) We have provided separate columns showing the payment amounts prior to and after the Consolidation, because all transactions with the PEAKS Trust were eliminated from our consolidated financial statements after the Consolidation. Cash payments were, however, made by us throughout the periods indicated, including the periods after the Consolidation.

(2) The 2009 RSA payments are made to, and recoveries are received from, the 2009 Entity. The 2009 Entity was not consolidated in our consolidated financial statements and, therefore, separate disclosure of amounts paid or received before and after the February 28, 2013 date of Consolidation is not applicable.

In the fiscal year ended December 31, 2013, we also offset $9,091 owed by us under the 2009 RSA against amounts owed to us by the 2009 Entity under the Revolving Note, instead of making additional payments in that amount. Approximately $6,786 of the amount that we claimed as an offset against the Revolving Note in the fiscal year ended December 31, 2013 represented Discharge Payments. We recorded all of the amounts claimed as offsets in Other current liabilities on our Consolidated Balance Sheet as of December 31, 2013. In the year ended December 31, 2013, the 2009 Entity did not remit to us $574 of recoveries from charged-off loans that were owed to us. We recorded all of the amounts owed to us from the 2009 Entity for recoveries from charged-off loans in Prepaid expenses and other current assets on our Consolidated Balance Sheet as of December 31, 2013.

In the first quarter of 2013, we notified the 2009 Entity that:

• we had determined that the 2009 Entity was in default of its obligations to us under the loan and security agreement pursuant to which the Revolving Note was issued (the “2009 Loan Agreement”);

• as a result of that default, all amounts under the Revolving Note were immediately due and payable; and

• we would not make payments under the 2009 RSA until we received credit for the full amount due us under the Revolving Note, based on the provisions of the 2009 Loan Agreement and the 2009 RSA that allow us to set off amounts owed by us under the 2009 RSA against amounts owed to us by the 2009 Entity under the Revolving Note.

At that time, the outstanding amount of the Revolving Note due to us was approximately $8,200, representing principal and accrued interest. In response to our notification, the 2009 Entity:

• denied that it had defaulted under the 2009 Loan Agreement and, therefore, our ability to accelerate the payment of the Revolving Note; and

• refused our demand to immediately pay the Revolving Note in full.

As a consequence, over the period from February 2013 through August 2013, we offset our then current payment obligations under the 2009 RSA and the amount of Discharge Payments we elected to make during that period against all of the 2009 Entity’s obligations owed to us under the Revolving Note (the “Offset”).

We understand that the 2009 Entity’s position is that the Offset was improper, because:

• it has not defaulted under the 2009 Loan Agreement; and

• even if it had defaulted under the 2009 Loan Agreement, the assets of the 2009 Entity against which we could offset or exercise our other remedies, were limited.

We further understand the 2009 Entity’s position to be that, because the Offset was improper, we are in default under the 2009 RSA. In April 2013, the 2009 Entity notified us that it had taken control of the restricted account containing the cash collateral that we deposited to secure our obligations under the 2009 RSA (the “Collateral”). At that time, the amount of funds in that account was approximately $8,600. To our knowledge, the 2009 Entity has taken no further action related to the Collateral. We believe that our good faith exercise of our right of offset provided for in the 2009 Loan Agreement and the 2009 RSA does not constitute an event of default under the 2009 RSA, and that the 2009 Entity’s seizure of control of the restricted account containing the Collateral constitutes an additional default by the 2009 Entity. We cannot assure you, however, that the Offset will ultimately be determined to have been proper. In the event of a default by us under the 2009 RSA related to the Offset, we may be required to pay to the 2009 Entity approximately $8,600, representing the amount of the Offset, net of approximately $500 of recoveries from charged-off loans that are owed, but have not been paid, to us. If the 2009 Entity instead were to withdraw Collateral in that amount from the restricted bank account, we would be required to deposit that amount of cash in the account to maintain the required level of Collateral. Any such payment or deposit would reduce the amount of our contingent liability related to the 2009 RSA.

F - 53

At the end of each reporting period, we assess whether we should recognize a contingent liability related to our guarantee obligations under the 2009 RSA (and, prior to February 28, 2013, the PEAKS Guarantee) and, if so, in what amount. As with any assessment, as facts and circumstances change, the recorded liability could change, and has changed, significantly. In order to make this assessment, we made certain assumptions with respect to the performance of the private education loans made under the 2009 Loan Program (and, prior to February 28, 2013, the PEAKS Program) over the life of those loans. The life of a private education loan made under the 2009 Loan Program or PEAKS Program may be in excess of ten years from the date of disbursement. Therefore, our assessment was based on assumptions for periods in excess of ten years, and those assumptions included, among other things, the following:

• the repayment performance of the private education loans made under the 2009 Loan Program (and, prior to February 28, 2013, the PEAKS Program);

• the timing and rate at which those private education loans will be paid;

• the changes in the variable interest rates applicable to those private education loans (and, prior to February 28, 2013, the PEAKS Senior Debt);

• the amounts and timing of collections in the future on those private education loans that have defaulted;

• prior to February 28, 2013, the fees and expenses associated with servicing the PEAKS Trust Student Loans; and

• our ability to utilize the available options for payment of our obligations under the 2009 RSA.

We consulted with third-party consumer credit consulting firms in arriving at our assumptions. The assumptions have changed, and may continue to change, significantly over time as actual results become known. Our recorded liability for our guarantee obligations under the 2009 RSA (and, prior to February 28, 2013, the PEAKS Guarantee) was included in Other current liabilities and Other liabilities on our Consolidated Balance Sheets.

17. Risks and Uncertainties

Many of the amounts of assets, liabilities, revenues and expenses reported in our consolidated financial statements are based on estimates and assumptions that affect the amounts reported. We are subject to risks and uncertainties that could affect amounts reported in our consolidated financial statements in future periods. Our future performance, results of operations, financial condition, cash flows, liquidity, capital resources, ability to meet our obligations and ability to comply with covenants, metrics and regulatory requirements are subject to significant risks and uncertainties that could cause actual results to be materially different from our estimated results, including, but not limited to, the following:

• The Consolidation of the PEAKS Trust and other factors, among other things:

• have resulted in violations by us of covenants under the Amended Credit Agreement. We have obtained waivers and amendments relating to those violations;

• have negatively impacted our compliance with:

• the ED’s financial responsibility measurements, primarily our institutions’ composite score; and

• our compliance with the financial requirements of certain state education and professional licensing authorities (“SAs”); and

• have negatively impacted the financial metrics to which we are subject under the PEAKS Program and 2009 RSA.

See Note 13 – Debt and Note 16 – Commitments and Contingencies for additional information.

• We believe that we will be required to consolidate the 2009 Entity into our consolidated financial statements in the foreseeable future, which could impact our compliance with:

• covenants under the Amended Credit Agreement;

• the ED’s financial responsibility measurements, primarily our institutions’ composite score;

• the financial requirements of certain SAs; and

• the financial metrics to which we are subject under the PEAKS Program and 2009 RSA.

See Note 10 – Variable Interest Entities for additional information.

• Our institutions’ failure to submit their audited consolidated financial statements and Compliance Audits to the ED by the due date resulted in sanctions imposed by the ED on our institutions that include, among other things, our institutions having to post a letter of credit, being placed on heightened cash monitoring (“HCM”) and being provisionally certified. We have arranged for the letter of credit and have implemented procedures to address HCM, which requirements are not expected to significantly impact the timing of receipt of student financial aid funds. See Note 13 – Debt for additional information.

• We are required to submit the ED Letter of Credit on or before November 4, 2014. The term of the letter of credit is for a period that ends on November 4, 2019. With respect to any letter of credit issued under the Amended Credit Agreement, we are required to provide cash collateral in an amount equal to 109% of the face amount of the ED Letter of Credit and 103% of the face amount of all other letters of credit. Based on

F - 54

the required amount of the ED Letter of Credit and other letters of credit outstanding as of the date of this filing, the amount of the cash collateral that we will have to provide is approximately $89,300. Such collateral may be provided from available funds. See Note 13 – Debt for additional information.

• We are subject to various claims and contingencies, including those related to litigation, government investigations, business transactions, guarantee arrangements and employee-related matters, among others. With regard to these matters, we cannot provide an estimate of the possible losses, or range of possible losses, in excess of the amounts, if any, accrued. See the subsections entitled “Litigation” and “Government Investigations” in Note 16 - Commitments and Contingencies, for a further discussion of certain litigation and government investigations to which we are subject.

• The significant guarantee obligations that we have under the PEAKS Guarantee and 2009 RSA. Based on various assumptions, including the historical and projected performance and collection of the PEAKS Trust Student Loans, we believe that we will make payments under the PEAKS Guarantee of approximately $163,966 in 2014 and approximately $9,165 in 2015. In addition, based upon various assumptions, including the historical and projected performance and collections of the private education loans under the 2009 Loan Program, we believe that we will make payments under the 2009 RSA of approximately $9,009 in 2014 and $14,251 in 2015. See Note 13 – Debt and Note 16 – Commitments and Contingencies for a further discussion of the RSAs, estimated payment amounts and contingent liabilities.

• As of December 31, 2013, the outstanding borrowings under the Amended Credit Agreement totaled $50,000 and were classified as a current liability, because we believe it is probable that we will not be in compliance with certain covenants under the Amended Credit Agreement during the 12 months following December 31, 2013. If we are not in compliance with one or more covenants and are unable to obtain a waiver of our noncompliance or an amendment to the Amended Credit Agreement that would allow us to be in compliance with those covenants or otherwise not be in default under the Amended Credit Agreement, the lenders would have various remedies, including:

• the lending commitments under the Amended Credit Agreement may be terminated;

• our ability to request the issuance of letters of credit and to obtain amendments, extensions or renewals of letters of credit already issued under the Amended Credit Agreement may be terminated; and

• all then outstanding borrowings and other amounts owed under the Amended Credit Agreement may be declared immediately due and payable.

In the event that we or our subsidiary guarantor do not pay in full, upon demand, all of our outstanding borrowings and other amounts owed under the Amended Credit Agreement or we, or our subsidiary guarantor, do not provide, upon demand, the cash collateral for our letter of credit obligations, the lenders would be entitled to recourse against the collateral security, including the Mortgaged Property, that we and our subsidiary guarantor have provided, in order to obtain payment of amounts we owe or are required to provide as cash collateral.

• We incurred a net loss in the year December 31, 2013 and we had negative working capital as of December 31, 2013, primarily due to the impact of the Consolidation and the loss that we recorded related to our guarantee obligations under the 2009 RSA.

Based on our current projections, we believe that cash generated from operations will be sufficient for us to satisfy our RSA payments, letters of credit cash collateralization, working capital, loan repayment and capital expenditure requirements over the 12-month period following the date that this Annual Report on Form 10-K was filed with the SEC. We also believe that any reduction in cash and cash equivalents that may result from their use to make payments under the RSAs, provide cash collateral for letters of credit, construct facilities or repay loans will not have a material adverse effect on our expansion plans, planned capital expenditures, ability to meet any applicable regulatory financial responsibility standards or ability to conduct normal operations over the 12-month period following the date that this Annual Report on Form 10-K was filed with the SEC. Accordingly, our consolidated financial statements contained in this Annual Report on Form 10-K were prepared on the basis that we will continue to operate as a going concern. However, there can be no assurance that the ultimate outcome of these events individually or in the aggregate will not have a material adverse effect on our financial condition, results of operations or cash flows.

F - 55

SCHEDULE II

ITT EDUCATIONAL SERVICES, INC.

VALUATION AND QUALIFYING ACCOUNTS

FOR THE THREE YEARS ENDED DECEMBER 31, 2013

(Amounts in thousands)

Description	Balance at Beginning of Period		Charged to Expenses		Write-offs			Balance at End of Period
Allowance for Doubtful Accounts:
Year Ended December 31, 2013	$	15,663	$	67,640	($	74,129	)	$	9,174
Year Ended December 31, 2012	$	9,175	$	56,818	($	50,330	)	$	15,663
Year Ended December 31, 2011	$	7,526	$	35,655	($	34,006	)	$	9,175

F - 56

ITT EDUCATIONAL SERVICES, INC.

QUARTERLY FINANCIAL RESULTS

FOR 2013 AND 2012

(Amounts in thousands, except per share data)

(Unaudited)

	Three Months Ended
	March 31			June 30			Sept. 30			Dec. 31 (3)			Year
2013 (1)
Revenue	$	285,062		$	260,459		$	259,617		$	267,173		$	1,072,311
Cost of educational services		124,176			123,541			120,204			118,432			486,353
Student services and administrative expenses		101,721			98,335			96,182			101,303			397,541
Legal and other investigation costs		1,500			213			2,089			3,121			6,923
Loss related to loan program guarantees		3,803			0			4,826			82,335			90,964
Provision for PEAKS Trust student loan losses		0			4,319			16,382			8,648			29,349
Operating income (loss)		53,862			34,051			19,934			(46,666	)		61,181
(Loss) on consolidation of PEAKS Trust		(73,248	)		0			0			0			(73,248	)
Interest income		34			25			16			33			108
Interest (expense)		(3,574	)		(7,369	)		(7,190	)		(7,144	)		(25,277	)
Income (loss) before provision for income taxes		(22,926	)		26,707			12,760			(53,777	)		(37,236	)
Provision (benefit) for income taxes		(5,655	)		6,503			3,336			(14,396	)		(10,212	)
Net income (loss)	$	(17,271	)	$	20,204		$	9,424		$	(39,381	)	$	(27,024	)
Earnings (loss) per share:
Basic	($	0.74	)	$	0.86		$	0.40		($	1.68	)	($	1.15	)
Diluted	($	0.74	)	$	0.86		$	0.40		($	1.68	)	($	1.15	)
2012 (2)
Revenue	$	339,209		$	328,061		$	313,791		$	305,572		$	1,286,633
Cost of educational services		134,941			140,067			133,948			129,394			538,350
Student services and administrative expenses		101,319			105,895			104,647			88,995			400,856
Asset impairment		0			0			0			15,166			15,166
Legal and other investigation costs		0			873			0			0			873
Loss related to loan program guarantees		3,054			3,906			5,095			88,970			101,025
Operating income (loss)		99,895			77,320			70,101			(16,953	)		230,363
Interest income		681			502			125			40			1,348
Interest (expense)		(547	)		(1,254	)		(1,021	)		(901	)		(3,723	)
Income (loss) before provision for income taxes		100,029			76,568			69,205			(17,814	)		227,988
Provision (benefit) for income taxes		39,384			30,627			26,747			(7,740	)		89,018
Net income (loss)	$	60,645		$	45,941		$	42,458		($	10,074	)	$	138,970
Earnings (loss) per share:
Basic	$	2.39		$	1.96		$	1.82		($	0.44	)	$	5.82
Diluted	$	2.37		$	1.95		$	1.81		($	0.44	)	$	5.79

(1) The amounts shown for the fiscal quarters ended March 31, 2013, June 30, 2013 and September 30, 2013 are the restated amounts, as reported in the amended Quarterly Reports on Form 10-Q (i.e., Form 10Q/As) for the fiscal quarters ended March 31, 2013, June 30, 2013 and September 30, 2013, as filed with the SEC.

(2) The amounts shown for the fiscal quarters ended March 31, 2012, June 30, 2012, September 30, 2012 and December 31, 2012 are the revised amounts, as reported in the amended Quarterly Reports on Form 10-Q (i.e., Form 10Q/As) for the fiscal quarters ended March 31, 2013, June 30, 2013 and September 30, 2013, as filed with the SEC.

(3) We revised our Consolidated Statement of Income for the three months ended December 31, 2012 to reflect immaterial corrections for: (i) the recognition of revenue with respect to students who withdrew from a program of study, which reduced revenue by $5,471 and student services and administrative expenses by $5,571; (ii) losses related to the 2009 RSA, which increased both revenue and loss related to loan program guarantees by $10,200; and (iii) a contingent loss related to the 2009 RSA, which increased loss related to loan program guarantees by $1,084.

F - 57

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	ITT Educational Services, Inc.
	By:	/s/ Kevin M. Modany
Dated: October 15, 2014		Kevin M. Modany
		Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Signature	Title	Date
/s/ Kevin M. Modany Kevin M. Modany	Chief Executive Officer (Principal Executive Officer)	October 15, 2014
/s/ Daniel M. Fitzpatrick Daniel M. Fitzpatrick	Executive Vice President and Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer)	October 15, 2014
/s/ John F. Cozzi John F. Cozzi	Director	October 15, 2014
/s/ John E. Dean John E. Dean	Executive Chairman and Director	October 15, 2014
/s/ James D. Fowler, Jr. James D. Fowler, Jr.	Director	October 15, 2014
/s/ Joanna T. Lau Joanna T. Lau	Director	October 15, 2014
/s/ Thomas I. Morgan Thomas I. Morgan	Director	October 15, 2014
/s/ Samuel L. Odle Samuel L. Odle	Director	October 15, 2014
/s/ Vin Weber Vin Weber	Director	October 15, 2014
/s/ John A. Yena John A. Yena	Director	October 15, 2014

S -1

INDEX TO EXHIBITS

		Incorporated by Reference From
Exhibit No.	Description	Form	Exhibit	Filing Date	Filed Herewith
3.1	Restated Certificate of Incorporation, as Amended to Date	10-Q*	3.1	7/29/05
3.2	Restated By-Laws, as Amended to Date	8-K*	3.2	7/22/11
10.1**	1997 ITT Educational Services, Inc. Incentive Stock Plan	10-Q*	10.8	8/8/97
10.2**	First Amendment to the 1997 ITT Educational Services, Inc. Incentive Stock Plan	10-Q*	10.38	7/17/03
10.3**	Second Amendment to 1997 ITT Educational Services, Inc. Incentive Stock Plan	10-Q*	10.58	10/26/06
10.4**	1999 Outside Directors Stock Option Plan	S-8***	4.3	8/10/99
10.5**	First Amendment to the 1999 Outside Directors Stock Option Plan	10-Q*	10.37	7/17/03
10.6**	Second Amendment to the 1999 Outside Directors Stock Option Plan	10-Q*	10.42	4/27/04
10.7**	Third Amendment to the 1999 Outside Directors Stock Option Plan	8-K*	10.47	1/28/05
10.8**	2006 ITT Educational Services, Inc. Equity Compensation Plan	8-K*	10.55	5/10/06
10.9**	First Amendment to 2006 ITT Educational Services, Inc. Equity Compensation Plan	10-Q*	10.57	10/26/06
10.10**	Second Amendment to 2006 ITT Educational Services, Inc. Equity Compensation Plan	10-Q*	10.61	7/26/07
10.11**	Third Amendment to 2006 ITT Educational Services, Inc. Equity Compensation Plan	10-K*	10.32	2/18/11
10.12**	Fourth Amendment to 2006 ITT Educational Services, Inc. Equity Compensation Plan	10-K*	10.12	2/24/12
10.13**	ITT Educational Services, Inc. Amended and Restated 2006 Equity Compensation Plan	8-K*	10.1	5/7/13
10.14**	Form of Nonqualified Stock Option Award Agreement under the 2006 ITT Educational Services, Inc. Equity Compensation Plan (for use prior to November 24, 2010)	10-Q*	10.53	5/1/06

S-2

		Incorporated by Reference From
Exhibit No.	Description	Form	Exhibit	Filing Date	Filed Herewith
10.15**	Form of Nonqualified Stock Option Award Agreement under the 2006 ITT Educational Services, Inc. Equity Compensation Plan (for use November 24, 2010 – January 23, 2012)	10-K*	10.35	2/18/11
10.16**	Form of Nonqualified Stock Option Award Agreement under the 2006 ITT Educational Services, Inc. Equity Compensation Plan (for use after January 23, 2012)	10-K*	10.15	2/24/12
10.17**	Form of Nonqualified Stock Option Award Agreement under the ITT Educational Services, Inc. Amended and Restated 2006 Equity Compensation Plan	8-K*	10.2	5/7/13
10.18**	Form of Restricted Stock Unit Award Agreement under the 2006 ITT Educational Services, Inc. Equity Compensation Plan (for use prior to January 17, 2011)	10-Q*	10.59	7/26/07
10.19**	Form of Restricted Stock Unit Award Agreement under the 2006 ITT Educational Services, Inc. Equity Compensation Plan (for use January 17, 2011 – January 23, 2012)	10-K*	10.33	2/18/11
10.20**	Form of Restricted Stock Unit Award Agreement under the 2006 ITT Educational Services, Inc. Equity Compensation Plan (for use after January 23, 2012)	10-K*	10.18	2/24/12
10.21**	Form of Restricted Stock Unit Award Agreement under the ITT Educational Services, Inc. Amended and Restated 2006 Equity Compensation Plan	8-K*	10.3	5/7/13
10.22**	Form of Amendment to Certain Restricted Stock Unit Award Agreements				X
10.23**	Form of Restricted Stock Award Agreement under the 2006 ITT Educational Services, Inc. Equity Compensation Plan (for use after November 24, 2010)	10-K*	10.34	2/18/11
10.24**	Form of Restricted Stock Award Agreement under the ITT Educational Services, Inc. Amended and Restated 2006 Equity Compensation Plan	8-K*	10.4	5/7/13

S-3

		Incorporated by Reference From
Exhibit No.	Description	Form	Exhibit	Filing Date	Filed Herewith
10.25**	Restated ESI 401(k) Plan	10-K*	10.20	2/24/12
10.26**	First Amendment of ESI 401(k) Plan	10-Q*	10.1	7/26/13
10.27**	Second Amendment of ESI 401(k) Plan				X
10.28**	ESI Excess Savings Plan – 2008 Restatement	10-K*	10.15	2/21/08
10.29**	Restated ESI Pension Plan	10-K*	10.22	2/24/12
10.30**	First Amendment of ESI Pension Plan	10-Q*	10.1	7/27/12
10.31**	ESI Excess Pension Plan – 2008 Restatement	10-K*	10.19	2/21/08
10.32**	First Amendment to ESI Excess Pension Plan – 2008 Restatement	10-Q*	10.23	7/24/08
10.33**	ESI Executive Deferred Bonus Compensation Plan – 2008 Restatement	10-K*	10.22	2/21/08
10.34**	ESI Non-Employee Directors Deferred Compensation Plan – 2008 Restatement	10-K*	10.21	2/21/08
10.35**	ITT Educational Services, Inc. Senior Executive Severance Plan	10-Q*	10.26	10/25/07
10.36**	First Amendment to the ITT Educational Services, Inc. Senior Executive Severance Plan	10-K*	10.28	2/24/12
10.37**	Summary of Certain Director and Executive Compensation				X
10.38	Trade Name and Service Mark License Agreement between ITT/ESI and ITT Sheraton Corporation	10-Q*	10.11	7/27/98
10.39	First Amendment to Trade Name and Service Mark License Agreement between ITT/ESI and ITT Sheraton Corporation	10-K*	10.18	2/19/99
10.40	Second Amendment to Trade Name and Service Mark License Agreement between ITT/ESI and ITT Manufacturing Enterprises, Inc. (assignee of ITT Sheraton Corporation)	10-Q*	10.24	10/31/00
10.41	Credit Agreement, dated as of March 21, 2012, among ITT Educational Services, Inc., the lenders party thereto, JPMorgan Chase Bank, N.A. as administrative agent, Bank of America, N.A., as syndication agent and Wells Fargo, N.A., as documentation agent	8-K*	10.1	3/27/12

S-4

		Incorporated by Reference From
Exhibit No.	Description	Form	Exhibit	Filing Date	Filed Herewith
10.42	First Amendment to Credit Agreement, dated as of March 31, 2014, by and among ITT Educational Services, Inc., the lenders party thereto, and JPMorgan Chase Bank, N.A. as administrative agent	8-K*	10.1	4/4/14
10.43	Second Amendment to Credit Agreement, dated as of May 29, 2014, by and among ITT Educational Services, Inc., the lenders party thereto, and JPMorgan Chase Bank, N.A. as administrative agent	8-K*	10.1	6/4/14
10.44	Third Amendment to Credit Agreement, Consent and Waiver, dated as of June 30, 2014, by and among ITT Educational Services, Inc., the lenders party thereto, and JPMorgan Chase Bank, N.A. as administrative agent	8-K*	10.1	7/2/14
10.45	Fourth Amendment to Credit Agreement, Consent and Waiver, dated as of July 30, 2014, by and among ITT Educational Services, Inc., the lenders party thereto, and JPMorgan Chase Bank, N.A. as administrative agent	8-K*	10.1	8/1/14
10.46	Fifth Amendment to Credit Agreement and Consent, dated as of September 15, 2014, by and among ITT Educational Services, Inc., the lenders party thereto, and JPMorgan Chase Bank, N.A. as administrative agent	8-K*	10.1	9/19/14
10.47	Guarantee Agreement, dated as of January 20, 2010, between ITT Educational Services, Inc. and Deutsche Bank Trust Company Americas, as indenture trustee and collateral agent				X
10.48	Amended and Restated Indenture and Credit Agreement, dated as of December 31, 2010, by and among PEAKS Trust 2009-1, Deutsche Bank Trust Company Americas, as indenture trustee and collateral agent and Deutsche Bank National Trust Company, as lender trustee				X

S-5

		Incorporated by Reference From
Exhibit No.	Description	Form	Exhibit	Filing Date	Filed Herewith
10.49	Subordinated Note Purchase Agreement, dated as of January 20, 2010, between ITT Educational Services, Inc. and PEAKS Trust 2009-1				X
10.50	Agreement for Servicing Private Student Loans, dated as of December 10, 2011, by and among PEAKS Trust 2009-1, Deutsche Bank Trust Company Americas, as indenture trustee and collateral agent, ITT Educational Services, Inc. and First Associates Loan Servicing, LLC				X
10.51	Purchase Obligation Agreement, dated as of January 20, 2010, by and among ITT Educational Services, Inc., Deutsche Bank Trust Company Americas, as indenture trustee and collateral agent, and the senior creditors signatory thereto				X
10.52	Letter Agreement, dated as of March 17, 2014, between ITT Educational Services, Inc., Deutsche Bank Trust Company Americas, as indenture trustee and collateral agent, and the holders of the senior debt signatory thereto	8-K*	10.1	3/21/14
10.53	Risk Sharing Agreement, dated as of February 20, 2009, between ITT Educational Services, Inc. and Student CU Connect CUSO, LLC, with the First Amendment, Second Amendment and Third Amendment thereto				X
10.54	Financing Program Agreement, dated as of February 20, 2009, between ITT Educational Services, Inc. and Student CU Connect CUSO, LLC, with the First Amendment, Second Amendment and Third Amendment thereto				X

S-6

		Incorporated by Reference From
Exhibit No.	Description	Form	Exhibit	Filing Date	Filed Herewith
10.55	Loan and Security Agreement, dated as of May 18, 2009, between ITT Educational Services, Inc. and Student CU Connect CUSO, LLC, with the First Amendment, Second Amendment and Third Amendment thereto				X
10.56	Agreement for Servicing Private Student Loans, dated as of May 18, 2012, by and between First Associates Loan Servicing, LLC and Student CU Connect CUSO, LLC				X
10.57**	Letter Agreement, dated August 4, 2014, by and between ITT Educational Services, Inc. and Kevin M. Modany	8-K*	10.1	8/5/14
10.58**	Letter Agreement, dated August 4, 2014, by and between ITT Educational Services, Inc. and John E. Dean	8-K*	10.2	8/5/14
21	Subsidiaries				X
23	Consent of Independent Registered Public Accounting Firm				X
31.1	Chief Executive Officer’s Certification Pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934				X
31.2	Chief Financial Officer’s Certification Pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934				X
32.1	Chief Executive Officer’s Certification Pursuant to 18 U.S.C. Section 1350				X
32.2	Chief Financial Officer’s Certification Pursuant to 18 U.S.C. Section 1350				X
101	The following materials from ITT Educational Services, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2013, formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated Balance Sheets; (ii) Consolidated Statements of Income; (iii) Consolidated Statements of Comprehensive Income; (iv) Consolidated Statements of Cash Flows; (v) Consolidated Statements of Shareholders’ Equity; (vi) Notes to Consolidated Financial Statements; and (vii) Financial Statement Schedule II				X

* SEC File No. 001-13144

** The indicated exhibit is a management contract, compensatory plan or arrangement required to be filed by Item 601 of Regulation S-K.

*** Registration No. 333-84871

S-7

EX-10.22

EXHIBIT 10.22

ITT EDUCATIONAL SERVICES, INC.

AMENDED AND RESTATED 2006 EQUITY COMPENSATION PLAN

Amendment to Restricted Stock Unit Award Agreements

This Amendment to Restricted Stock Unit Award Agreements (this “Amendment”), effective as of January 20, 2014, is by and between ITT Educational Services, Inc. (the “Company”) and                      (“Grantee”).

Recitals

The Company and Grantee are parties to the following Restricted Stock Unit Award Agreements:

A. 2006 ITT Educational Services, Inc. Equity Compensation Plan Restricted Stock Unit Award Agreement, dated as of the 17^th day of May, 2011, relating to 1,412 Restricted Stock Units granted by the Company to Grantee (the “2011 Award Agreement”);

B. 2006 ITT Educational Services, Inc. Equity Compensation Plan Restricted Stock Unit Award Agreement, dated as of the 22^nd day of May, 2012, relating to 1,722 Restricted Stock Units granted by the Company to Grantee (the “2012 Award Agreement); and

C. ITT Educational Services, Inc. Amended and Restated 2006 Equity Compensation Plan Restricted Stock Unit Award Agreement, dated as of the 21^st day of May, 2013, relating to 3,598 Restricted Stock Units granted by the Company to Grantee (the “2013 Award Agreement”).

The 2011 Award Agreement, the 2012 Award Agreement and the 2013 Award Agreement are referred to collectively herein as the “Award Agreements.”

The Company and the Grantee desire to amend the Award Agreements to provide for a modification of the treatment of the Restricted Stock Units granted under the Award Agreements upon a certain type of termination of service with the Company.

In consideration of the foregoing, the provisions set forth herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company and the Grantee agree as follows:

1.                 Paragraph 6 of each of the Award Agreements is hereby deleted in its entirety and replaced with the following:

6. Termination of Service.

  (a) Upon termination of the Grantee’s service due to death or Disability, the Period of Restriction with respect to the
Restricted Stock Units will lapse

immediately, and the Restricted Stock Units will be settled immediately thereafter and paid immediately thereafter in the form specified in paragraph 4 of this Agreement.

  (b) Upon termination of the Grantee’s service due to the expiration of the last term that the Grantee is permitted to serve pursuant to any then-effective term or age limitation contained in any Company guideline, policy, principle or other corporate document that results in the Grantee not being able to be nominated to a new term of service on the Company’s Board of Directors, the Period of Restriction with respect to the Restricted Stock Units will lapse immediately, and the Restricted Stock Units will be settled immediately thereafter and paid immediately thereafter in the form specified in paragraph 4 of this Agreement.

  (c) Upon termination of the Grantee’s service for any reason other than the reasons described in this paragraph 6(a) or 6(b), the Grantee will forfeit immediately after the termination of service all of his or her Restricted Stock Units that are unvested as of the date of termination of employment or service.

2.                 Except as specifically amended in this Amendment, all provisions of the Award Agreements shall remain unchanged and in full force and effect.

The Company and the Grantee have executed this Amendment as of the date first above written.

[GRANTEE SIGNATURE]

Print Name:

ITT EDUCATIONAL SERVICES, INC.

By:

Print Name:

Title:

- 2 -

EX-10.27

EXHIBIT 10.27

SECOND AMENDMENT OF ESI 401(k) PLAN

This Second Amendment of ESI 401(k) Plan (the “Plan”) is adopted by ITT Educational Services, Inc. (the “Employer”).

Background

A. Effective January 1, 2012, the Employer amended and completely restated the Plan.

B. The Plan was amended by a First Amendment.

C. The Employer now wishes to amend the Plan further.

Amendment

Effective August 1, 2013, the Plan is amended by adding a new Article XIX to read as follows:

ARTICLE XIX

ACQUISITION OF CABLE HOLDINGS, LLC

(DOING BUSINESS AS BENCHMARK LEARNING)

Notwithstanding any other provision of the Plan, solely with respect to individuals who were employed by Cable Holdings, LLC (“Benchmark”) on July 31, 2013 and by ESI on August 1, 2013, the following rules apply:

(a) For the purpose of determining an Employee’s membership, service with Benchmark prior to August 1, 2013 will be considered in determining his Continuous Service under Section 3.1.

(b) For the purpose of determining a Member’s nonforfeitable percentage in his Company Matching Contribution Account, service with Benchmark prior to August 1, 2013 will be considered Service under Section 5.4.

This Second Amendment of ESI 401(k) Plan (2012 Restatement) is executed this 18^th day of December, 2013.

ITT EDUCATIONAL SERVICES, INC.
By:	Angela K. Knowlton
	(Signature)
	Angela K. Knowlton
	(Printed)
	Senior Vice President, Controller and Treasurer
	(Title)

ATTEST:

Jenny Yonce

(Signature)

Jenny Yonce

(Printed)

Manager, Benefits & HRIS

(Title)

-2-

EX-10.37

Exhibit 10.37

Description of ITT Educational Services, Inc.’s Executive and Director Compensation

2014 Executive Salaries

On January 20, 2014, the Compensation Committee of our Board of Directors authorized a salary increase for our named executive officers effective February 10, 2014. The named executive officers are those executive officers of ours who will be included as such in the Proxy Statement for our 2014 Annual Meeting of Shareholders. The following table sets forth the 2014 base salary information for each of our named executive officers as of February 10, 2014.

Named Executive Officer	2014 Salary
Kevin M. Modany	$	824,076
Daniel M. Fitzpatrick	$	412,000
Eugene W. Feichtner*	$	319,411
June M. McCormack	$	285,094
Glenn E. Tanner	$	266,880

* On August 4, 2014, Mr. Feichtner was appointed our President and Chief Operating Officer. In connection with that appointment, Mr. Feichtner’s annual base salary will increase to $400,000, effective as of the date in 2015 that other employees at the Company’s headquarters receive compensation adjustments.

2013 Short-Term Compensation Payments

On January 20, 2014, the Compensation Committee reviewed the results of the eight 2013 management objectives (the “2013 Management Objectives”) under the short-term compensation element of executive compensation previously established by the Compensation Committee. Based on its determination of the extent to which each of the 2013 Management Objectives was accomplished by our named executive officers in 2013, the Compensation Committee approved the payment of a short-term compensation amount in cash to each of our named executive officers, as follows:

Named Executive Officer	2013 Short-Term Compensation Amount
Kevin M. Modany	$	1,000,093
Daniel M. Fitzpatrick	$	325,000
Eugene W. Feichtner	$	232,581
June M. McCormack	$	207,593
Glenn E. Tanner	$	194,330

2014 Short-Term Compensation

On March 1, 2014, the Compensation Committee established a short-term compensation element for our executive officers that will be payable in early 2015, if certain management objectives (the “2014 Management Objectives”) are accomplished during 2014. The 2014 Management Objectives and their respective weightings are as follows:

	Management Objective	Weight
1.	Obtain requisite state and accrediting commission authorizations for corporate training, continuing education and/or test preparation programs.		20	%
2.	Design and implement an operational optimization plan to increase ITT/ESI’s operational efficiencies for the corporation.		20	%
3.	Obtain requisite federal, state and accrediting commission authorizations for additional health science, technology and/or engineering programs at the ITT Technical Institutes at both the associate degree and diploma levels.		20	%
4.	Improve the 2014 ITT Technical Institute quarterly student evaluation average score.		10	%
5.	Revise and begin teaching the six identified high volume, high-impact program courses at the majority of ITT Technical Institute campuses.		10	%
6.	Acquire a training company to support strategic initiatives associated with The Center for Professional Development.		10	%
7.	Obtain requisite federal, state and accrediting commission authorizations for a dual high school diploma and associate degree program at an ITT Technical Institute.		5	%
8.	Obtain requisite federal, state and accrediting commission authorizations for additional nursing programs at the ITT Technical Institutes at both the associate and bachelor degree levels.		5	%

The determination of the extent to which the 2014 Management Objectives are accomplished by our executive officers will be made by the Compensation Committee in early 2015. The Committee intends to assign one to five points to each 2014 Management Objective, based on the extent to which the Committee determines the objective was accomplished. The number of points assigned to each 2014 Management Objective will be multiplied by the weight associated with that 2014 Management Objective, resulting in a weighted number of points for that 2014 Management Objective. The weighted number of points for all of the 2014 Management Objectives will be added together, resulting in a total number of weighted points. The following table sets forth the maximum short-term compensation percentage that is associated with the total number of weighted points that are assigned to the 2014 Management Objectives by the Compensation Committee:

Total Weighted Points	Maximum Short-Term Compensation Percentage
4.76-5.00		200.0	%
4.51-4.75		187.5	%
4.26-4.50		175.0	%
4.01-4.25		162.5	%
3.76-4.00		150.0	%
3.51-3.75		137.5	%
3.26-3.50		125.0	%
3.01-3.25		112.5	%
2.76-3.00		100.0	%
2.51-2.75		87.5	%
2.26-2.50		75.0	%
2.01-2.25		62.5	%
1.76-2.00		50.0	%
1.51-1.75		41.7	%
1.26-1.50		33.3	%
1.00-1.25		25.0	%

To determine the maximum short-term compensation amount that an executive officer may receive, the maximum short-term compensation percentage (determined as described above) will be multiplied by a standard short-term compensation percentage of annualized base salary as of December 31, 2014, ranging from 32% to 100%, with the percentage depending on the officer’s position, and the result will be multiplied by the officer’s annualized base salary. The following table sets forth the 2014 standard short-term compensation percentage of annualized base salary as of December 31, 2014 for each of the named executive officers:

Named Executive Officer	2014 Standard Short- Term Compensation Percentage of Annualized Base Salary
Kevin M. Modany		100	%
Daniel M. Fitzpatrick		65	%
Eugene W. Feichtner		60	%
June M. McCormack		60	%
Glenn E. Tanner		60	%

An executive officer’s actual short-term compensation payment, however, may be more or less than the officer’s potential short-term compensation as calculated as described above. An executive officer’s actual short-term compensation amount will be based on the Compensation Committee’s discretionary assessment of the officer’s individual contribution toward accomplishing each 2014 Management Objective. Any 2014 short-term compensation payment will be made in cash. The Compensation Committee may, in its sole discretion, modify the terms of the short-term compensation element at any time before it is paid.

2014 Executive Perquisites

On January 20, 2014, the Compensation Committee of our Board of Directors also approved the following executive perquisites in 2014 for our named executive officers:

• for Mr. Modany, the use of a company car;

• for Mr. Modany, an allowance to be used for tax return preparation and financial planning of up to 2% of annualized base salary as of February 10, 2014;

• for Messrs. Fitzpatrick, Feichtner and Tanner and Ms. McCormack, an allowance to be used for tax return preparation and financial planning of up to 1% of annualized base salary as of February 10, 2014; and

• for each of the Named Executive Officers:

• tickets to sporting, theater and other events;

• enhanced disability benefits; and

• an annual physical examination.

The aggregate incremental cost to us in 2014 for providing all of the 2014 perquisites described above is not expected to exceed $150,000.

2014 Director Compensation

The compensation for non-employee Directors on our Board of Directors in 2014 consists of:

• an annual retainer of $75,000 payable in one installment on January 1, 2014, at the election of each non-employee Director, in cash or shares of our common stock in increments of 25% each;

• no separate meeting fees;

• a grant under the ITT Educational Services, Inc. Amended and Restated 2006 Equity Compensation Plan of restricted stock units (“RSUs”) with a time-based period of restriction that:

• has a value of $100,000, plus the value associated with any fractional RSU necessary to cause the grant to be for a whole number of RSUs, pursuant to which the value is determined based on the closing market price of a share of our common stock on the effective date of the grant;

• is effective on the third business day following the date as of which we become current in our filings with the Securities and Exchange Commission;

• has a time-based period of restriction of one year; and

• is settled on the first business day following the last day of the period of restriction by the delivery of one share of our common stock for each RSU in the grant.

We also reimburse Directors for reasonable, out-of-pocket travel expense related to attending our Board of Directors and its committee meetings and other business of the Board.

On August 4, 2014, John E. Dean was appointed our Executive Chairman and became an employee of ours. In connection with his appointment as Executive Chairman, we entered into a letter agreement with Mr. Dean which

provides for an annual base salary of $575,000 and a grant of RSUs on August 4, 2014 that had a value of $1,000,000, based on the closing price of our common stock on the date of grant, which resulted in a grant of 129,534 RSUs to Mr. Dean on that date. The RSUs will vest, subject to Mr. Dean’s continued service as Executive Chairman or as a member of the Board, on the first anniversary of the grant date or, if earlier, upon his termination of employment due to death or disability. Mr. Dean will receive no other compensation for his service as Executive Chairman, but will continue to vest in the equity-based awards granted to him in connection with his service as a non-employee Director.

EX-10.47

EXHIBIT 10.47

Execution Version

GUARANTEE AGREEMENT

THIS GUARANTEE AGREEMENT is made as of January 20, 2010 (this “Agreement”), between ITT Educational Services, Inc., a Delaware corporation (the “Guarantor”) and Deutsche Bank Trust Company Americas, as indenture trustee and collateral agent (the “Secured Party”) under the indenture and credit agreement dated as of January 20, 2010 (as amended, supplemented, restated or otherwise modified from time to time in accordance with the terms thereof, the “Indenture and Credit Agreement”) among PEAKS Trust 2009-1 (the “Trust”), Deutsche Bank National Trust Company, as the lender trustee (the “Lender Trustee”), and the Secured Party.

RECITALS

A. The Guarantor offers certain programs of education through schools that it owns and operates.

B. Many students attending the Guarantor’s schools need private student loans to finance their education costs to the extent such costs are not fully covered by other sources.

C. The Trust has been established pursuant to a Trust Agreement dated as of December 23, 2009 (as amended, supplemented, restated or otherwise modified from time to time, the “Trust Agreement”), between Access Group, Inc., as depositor (the “Depositor”), and Deutsche Bank Trust Company Delaware, as owner trustee (in such capacity, the “Owner Trustee”), for the purpose of purchasing and holding loans made to students attending the Guarantor’s schools (the “Student Loans”).

D. The Trust Agreement and the Indenture and Credit Agreement provide for senior asset-backed notes to be issued by the Trust (the “Senior Notes”) and for a subordinate variable funding note to be issued by the Trust (the “Subordinated Note”) to provide funds to purchase and hold Student Loans. The Senior Notes will be purchased by certain purchasers (the “Note Purchasers”) pursuant to the terms of a note purchase agreement dated as of January 20, 2010 (the “Senior Notes Note Purchase Agreement”) between the Trust and the Note Purchasers and acknowledged by the Secured Party.

E. The Trust Agreement and the Indenture and Credit Agreement also provide for the terms of a loan (the “Loan” and together with the Senior Notes, the “Senior Credit”) to provide funds to purchase and hold Student Loans, which Loan will be made by a lender (the “Lender” and together with the Note Purchasers, the “Senior Creditors”) to the Trust pursuant to a loan agreement (the “Loan Agreement”) dated as of January 20, 2010 among the Trust, the Secured Party and the Lender.

F. The proceeds of the Senior Notes and the Loan will be used to (a) purchase the Student Loans, (b) fund a reserve account (the “Reserve Account”) held by the Secured Party and (c) pay certain fees of the Trust. Amounts on deposit in the Reserve Account will only be available to pay certain amounts that are due and owing with respect to the Senior Credit and certain fees of the Trust as set forth in the Indenture and Credit Agreement.

G. As a condition to the issuance of the Senior Notes and the extension of the Loan, the Indenture and Credit Agreement requires that the Guarantor guarantee the payment, on the terms set forth herein, of the Guaranteed Payments.

H. Capitalized terms used but not defined herein (including in the preamble and the recitals hereto) shall have the meanings assigned to such terms in the Indenture and Credit Agreement.

AGREEMENTS

1. The Guarantor hereby (a) unconditionally and irrevocably guarantees to the Secured Party the full and prompt payment when due from time to time of: (i) all Ordinary Administrative Expenses payable on any Payment Date, (ii) all interest payable on the Senior Credit on any Payment Date or at the maturity of the Senior Credit (including as a result of the acceleration of the maturity of the Senior Credit following an event of default under the Indenture and Credit Agreement), (iii) principal due and payable on the Senior Credit at the maturity of the Senior Credit (including as a result of the acceleration of the maturity of the Senior Credit following an event of default under the Indenture and Credit Agreement), (iv) any Call Premium due upon a prepayment in full of the Senior Credit, (v) on any Payment Date after the Payment Date in February 2012, the Arranging Agent Fee for such Payment Date, (vi) on any Payment Date related to a Monthly Measurement Date on which the Asset/Liability Test is not satisfied (x) an amount sufficient to reduce the Outstanding Amount of the Senior Credit to an amount that would satisfy the Asset/Liability Test if the Asset/Liability Test were calculated giving effect to such reduction, and (y) any Call Premium that is payable upon a payment of principal on the Senior Credit in the amount set forth in clause (x), and (vii) to the extent not otherwise covered pursuant to clauses (i) -(vi) above, any principal and interest payable on the Senior Credit when due and any Call Premium due upon a prepayment in full of the Senior Credit (the obligations identified in clauses (i), (ii), (iii), (iv), (v), (vi) and (vii) being referred to herein as the “Guaranteed Payments”); (b) agrees to pay all costs, expenses and reasonable attorneys’ fees incurred by the Secured Party in enforcing this Agreement; and (c) agrees to pay to the Secured Party the amount of any payments made to the Secured Party on account of the Guaranteed Payments which are recovered from the Secured Party or the Senior Creditors by a trustee, receiver, creditor or other party pursuant to applicable law. The Guarantor shall not be required to make any payments in respect of any Guaranteed Payments as set forth herein unless Available Funds and amounts on deposit in the Reserve Account available to make any such Guaranteed Payments on the related Payment Date are insufficient to pay any such Guaranteed Payments.

2. To the extent that, as of the Monthly Measurement Date for a Payment Date, there are not sufficient Available Funds and amounts on deposit in the Reserve Account available to pay any Guaranteed Payments on the related Payment Date, the Secured Party shall demand payment of any such Guaranteed Payments from the Guarantor by delivery of a demand for payment in substantially the form of Exhibit A to this Agreement (the “Payment Demand”). The Guarantor shall, by 4:00 p.m., New York City time, on the Business Day immediately

-2-

preceding the related Payment Date (or, if the Payment Demand is not delivered by the Secured Party on or prior to the Business Day immediately following the related Monthly Measurement Date, then by 4:00 p.m., New York City time, on the third Business Day following delivery of the Payment Demand), make payment of the amount demanded in immediately available funds to the account of the Secured Party identified in such Payment Demand. Payment of any other amounts described in Section 1 shall be made promptly upon demand for payment thereof in writing from the Secured Party, which shall refer to this Agreement and identify the amount required to be paid in reasonable detail.

3. This is a guarantee of payment, and not of collection. The Secured Party shall not be obligated to: (a) take any steps whatsoever to collect from, or to file any claim of any kind against, the Trust or any other person or entity liable for payment of any Guaranteed Payments; or (b) take any steps whatsoever to protect, accept, obtain, enforce, take possession of, perfect its interest in, foreclose or realize on collateral or security, if any, for the payment of the Guaranteed Payments (except for Available Funds and amounts on deposit in the Reserve Account held under the Indenture and Credit Agreement and available for such payment in accordance with the terms thereof); or (c) in any other respect exercise any diligence whatever in collecting or attempting to collect any amount due under the Senior Credit or the Indenture and Credit Agreement by any means.

4. The Guarantor’s liability for payment of the Guaranteed Payments in the manner provided in this Agreement shall be absolute and unconditional; the Guarantor unconditionally and irrevocably waives each and every defense which, under principles of guarantee or suretyship law, would otherwise operate to impair or diminish such liability; and nothing whatever except actual full indefeasible payment to the Secured Party of the Guaranteed Payments shall operate to discharge the Guarantor’s liability hereunder. The Guarantor guarantees that, to the fullest extent permitted by law, the Guaranteed Payments will be paid strictly in accordance with the terms of this Agreement, regardless of any law, regulation or order now or hereafter in effect in any jurisdiction affecting any of such terms or the rights of the Secured Party with respect thereto.

Without limiting the generality of the foregoing, the Secured Party shall have the right, which may (subject to the specific consent rights of the Senior Creditors and other limitations provided in the Indenture and Credit Agreement), be exercised from time to time without diminishing or impairing the liability of the Guarantor in any respect, and without notice of any kind to the Guarantor, to: (a) extend any additional credit to the Trust; (b) accept any collateral, security or guarantee for any Guaranteed Payments; (c) accept partial payment of Guaranteed Payments by the Guarantor; (d) determine what, if anything, shall at any time be done with respect to any collateral or security; subordinate, sell, transfer, surrender, release or otherwise dispose of all or any of such collateral or security; and purchase or otherwise acquire any such collateral or security at foreclosure or otherwise; and (e) with or without consideration grant, permit or enter into any waiver, amendment, extension, modification, refinancing, indulgence, compromise, settlement, subordination, discharge or release of: (i) payment of any Guaranteed Payment by the Guarantor or any obligations of the Guarantor under any agreement relating to the Guaranteed Payments, (ii) any obligations of any other person or entity liable for payment of the Guaranteed Payments, and any agreement of such person relating to such obligations, and (iii) any collateral or security or agreement relating to collateral or security for any of the foregoing.

-3-

5. Except as set forth in Section 2 hereof with respect to delivery of the Payment Demand and other demands for payment, the Guarantor hereby unconditionally waives (a) presentment, notice of dishonor, protest, demand for payment and all notices of any kind, including without limitation, notice of: (i) acceptance hereof, (ii) creation of the Senior Credit, (iii) nonpayment, nonperformance or other default on any Guaranteed Payments, and (iv) any action taken to collect upon or enforce any Guaranteed Payments; (b) any setoffs or counterclaims against the Secured Party which would otherwise impair the Secured Party’s rights against the Guarantor hereunder; and (c) any other action, event or condition to the enforcement of this Agreement or the performance by the Guarantor of its obligations hereunder.

6. The Guarantor hereby unconditionally waives any subrogation to the rights of the Secured Party, the Senior Creditors, payees of Ordinary Administrative Expenses or the Arranging Agent against the Trust and any other claim against the Trust which arises as a result of payments made by the Guarantor pursuant to this Agreement, and agrees that its sole right to receive reimbursement from the Trust for any such payments shall be the right to receive reimbursement of Guaranteed Payments paid by the Guarantor (without interest on any such amount) as provided in the Indenture and Credit Agreement. To the extent the Guarantor has or acquires any other claims against the Trust, the Guarantor agrees that the Guaranteed Payments shall be prior to any such claims, whether or not the Trust becomes insolvent, and the Guarantor shall and does expressly subordinate any such claims to any claim that the Secured Party may now or hereafter have against the Trust in respect of the Guaranteed Payments.

7. The Guarantor has made an independent investigation and evaluation of the financial condition of the Trust and the value of any collateral, and has not relied (and will not rely) on any information or evaluation provided by the Certificateholder, the Secured Party, the Owner Trustee, or any other person regarding such condition or value. The Guarantor has reviewed the Indenture and Credit Agreement, the Loan Agreement, the Senior Notes Note Purchase Agreement and the forms of the Senior Notes and the Loan Note and understands the nature of the Guaranteed Payments, including that any payment by the Guarantor of amounts demanded for payment of any Guaranteed Payment pursuant to Section 2 hereof received after 4:00 p.m., New York City time, on the Business Day immediately preceding the related Payment Date (or, if the Payment Demand is not delivered by the Secured Party on or prior to the Business Day immediately following the related Monthly Measurement Date, then by 4:00 p.m., New York City time, on the third Business Day following delivery of the Payment Demand) will be considered to be a failure of the Guarantor to make a Guaranteed Payment when due.

8. The Guarantor represents and warrants that:

(a) The Guarantor is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and has the power and all licenses necessary to own its assets and to transact the business in which it is engaged and is duly qualified and in good standing under the laws of each jurisdiction where the ownership of assets or the transaction of such business requires such qualification.

-4-

(b) The Guarantor has the power, authority and legal right to make, deliver and perform this Agreement and any other Basic Document to which it is a party and all of the transactions contemplated hereby and thereby, and has taken all necessary action to authorize the execution, delivery and performance of this Agreement and any other Basic Document to which it is a party. This Agreement and any other Basic Documents to which the Guarantor is a party constitute the legal, valid and binding obligations of the Guarantor, enforceable against it in accordance with each of their respective terms, except as such enforcement may be limited by bankruptcy, insolvency or other similar laws affecting creditors’ rights generally and court decisions with respect thereto and subject to the applicability of general principles of equity. No consent of any other party and no consent, license, approval or authorization of, or registration or declaration with, any governmental authority, bureau or agency is required in connection with the execution, delivery or performance by the Guarantor of this Agreement or any other Basic Document to which it is a party or the validity or enforceability of this Agreement or any such Basic Document, other than such as have been met or obtained.

(c) The execution, delivery and performance of this Agreement by the Guarantor and all other agreements and instruments executed and delivered by the Guarantor or to be executed and delivered by the Guarantor in connection with the issuance and sale of the Senior Notes and the borrowing under the Loan will not violate any provision of any existing law or regulation or any order or decree of any court, regulatory body or administrative agency or the certificate of incorporation or bylaws of the Guarantor or any other Basic Document to which the Guarantor is a party, or violate any contract or other agreement to which the Guarantor is a party or by which the Guarantor or any property or assets of the Guarantor may be bound, except to the extent such violation could not reasonably be expected to have a material adverse effect on the ability of the Guarantor to perform its obligations under this Agreement or any other Basic Document to which the Guarantor is a party.

(d) No litigation or administrative proceeding of or before any court, tribunal or governmental body is presently pending or, to the knowledge of the Guarantor, threatened against the Guarantor or any properties of Guarantor or with respect to this Agreement, which, if adversely determined, could have a material effect on the ability of the Guarantor to perform its obligations under this Agreement or any other Basic Document to which the Guarantor is a party.

(e) No injunction, writ, restraining order or other order of any nature against the Guarantor adversely affects the Guarantor’s performance of its obligations under this Agreement or any other Basic Document to which the Guarantor is a party.

(f) The Guarantor is solvent and able to meet its debts as they become due, the fair market value of its assets exceeds the aggregate amount of its debts and liabilities, and the consummation of the transactions contemplated hereby will not cause the foregoing statements to become untrue.

(g) The obligations of the Guarantor under this Agreement are not junior, and will not be junior, in priority of payment or in any other respect to any unsecured indebtedness of the Guarantor.

(h) The Guarantor understands that it is the Trust’s intention that the Senior Credit and the Subordinated Note be treated as debt for federal income tax purposes, and agrees to so treat the Senior Credit and the Subordinated Note as debt instruments and to take no action inconsistent therewith.

-5-

(i) The Guarantor maintains a corporate policy that the Guarantor shall advise students attending schools owned and operated by the Guarantor to consider all federal student aid that is available.

9. The Guarantor hereby covenants that it will maintain, during the term of the Loan Purchase Agreement, its corporate policy that the Guarantor shall advise students attending schools owned and operated by the Guarantor to consider all federal student aid that is available.

10. The Guarantor hereby covenants that it will not arrange, directly or indirectly, for the prepayment of any Student Loan except as expressly permitted in the Basic Documents.

11. The Guarantor agrees: (i) to review each Monthly Report prior to its delivery by the Secured Party to the Creditors pursuant to Section 4.13(b) of the Indenture and Credit Agreement, as long as the Guarantor receives the applicable Monthly Report at least three Business Days prior to the date that the Secured Party delivers that Monthly Report to the Senior Creditors; and (ii) that, if the Guarantor is required to make a payment pursuant to the terms of clause (vi) of Section 1 of this Agreement and that payment is material to the Guarantor, the Guarantor will disclose that payment in a current report on Form 8-K with the SEC. Notwithstanding the foregoing: (a) no third party, including, without limitation, the Senior Creditors, can or shall rely in any way on the Guarantor’s agreement to review each Monthly Report (1) to absolve any such third party or Senior Creditor from its obligations in respect of federal or state securities laws or regulations or (2) for any reason or purpose that has the effect of transferring to the Guarantor any potential or actual responsibility, obligation or liability of the third party under the Securities Act ; and (b) the Guarantor neither has nor assumes, whether now or in the future, any responsibility, obligation or liability whatsoever that directly or indirectly relates to or arises from any of the Senior Creditors’ compliance with any of the federal or state securities laws or regulations.

12. The Guarantor shall provide to the Administrator and the Secured Party a certificate of an authorized officer of the Guarantor in the form of Exhibit B hereto (the “Quarterly Report”) on the second Business Day following the date on which the Guarantor files its Form 10-Q or Form 10-K, as applicable, with the Securities and Exchange Commission (the “SEC”) for each such fiscal quarter or fiscal year, as applicable, which Quarterly Report shall set forth the financial and operating information referred to therein as of the end of the immediately preceding fiscal quarter of the Guarantor. The Guarantor shall also provide to the Secured Party such other information regarding the financial condition of the Guarantor as the Secured Party may reasonably request from time to time.

13. This Agreement shall inure to the benefit of the Secured Party on behalf of the Senior Creditors, the payees of Ordinary Administrative Expenses, the Arranging Agent and their permitted successors and assigns and shall be binding upon the Guarantor and the Guarantor’s successors and assigns.

-6-

14. This is a continuing guarantee and shall continue in effect until the Guaranteed Payments shall be paid in full and such payments are not subject to any right of recovery, at which time this Agreement shall terminate and be of no further force and effect. The liability of the Guarantor hereunder shall be primary, absolute and unconditional under all circumstances. This Agreement will continue to be effective if the Guarantor merges or consolidates with or into another entity, loses its separate legal identity or ceases to exist.

15. No invalidity, irregularity, voidability, voidness or unenforceability of, or default under, the Indenture and Credit Agreement, or any other Basic Document or any other agreement or instrument relating thereto, or of all or any part of the Guaranteed Payments or of any security therefor shall affect, impair or be a defense to the obligations of the Guarantor under this Agreement.

16. No act, omission or delay by the Secured Party shall constitute a waiver of its rights and remedies hereunder or otherwise. No single or partial waiver by the Secured Party of any default hereunder or right or remedy which it may have shall operate as a waiver of any other default, right or remedy or of the same default, right or remedy on a future occasion.

17. This Agreement and the Indenture and Credit Agreement constitute the entire agreement between the Secured Party and the Guarantor with respect to the subject matter hereof, superseding all previous communications and negotiations, and no representation, understanding, promise or condition concerning the subject matter hereof shall be binding upon the Secured Party unless expressed herein or therein.

18. No amendment or waiver of any provision of this Agreement and no consent to any departure by the Guarantor therefrom shall in any event be effective unless the same shall be in writing and signed by the Secured Party, subject to the specific consent rights of the Senior Creditors and other limitations provided in the Indenture and Credit Agreement, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which it is given.

19. The Guarantor may not delegate any of its obligations or duties under this Agreement without the prior written consent of the Secured Party.

20. This Agreement shall be governed by the laws of the State of New York without regard to the conflicts of law principles thereof (other than Sections 5-1401 and 5-1402 of the New York General Obligations Law).

21. The Guarantor hereby consents to the non-exclusive jurisdiction of any state or federal court situated in the City of New York, New York, and waives any objection based on lack of personal jurisdiction, improper venue or forum non conveniens, with regard to any actions, claims, disputes or proceedings relating to this Agreement, or any document delivered hereunder or in connection herewith, or any transaction arising from or connected to any of the foregoing. Nothing herein shall affect the Secured Party’s right to serve process in any manner permitted by law, or limit the Secured Party’s right to bring proceedings against the Guarantor or its property or assets in the competent courts of any other jurisdiction or jurisdictions.

-7-

22. The Guarantor hereby waives any and all right to trial by jury in any action or proceeding relating to this Agreement, or any document delivered hereunder or in connection herewith, or any transaction arising from or connected to any of the foregoing. The Guarantor represents that this waiver is knowingly, willingly and voluntarily given.

23. All notices, Quarterly Reports, Payment Demands, other requests for payment and other communications under this Agreement shall be in writing (including in electronic format), and sent to the address set forth below, or to such other address as the recipient shall have designated to the other party by written notice:

If intended for the Guarantor:

ITT Educational Services, Inc.

13000 North Meridian Street

Carmel, IN 46032

e-mail: dfitzpatrick@ittesi.com

Attention: Chief Financial Officer

Telephone: (317) 706-9200

Facsimile: (317) 706-9254

If intended for the Secured Party:

Deutsche Bank Trust Company Americas

c/o Deutsche Bank National Trust Company

100 Plaza One

Jersey City, NJ 07311-3901

Attention: Susan Barstock

Telephone: (201) 593-8421

Facsimile: (212) 553-2458

Email: susan.barstock@db.com

If intended for the Administrator:

Access Group, Inc.

P.O. Box 7430

5500 Brandywine Parkway

Wilmington, Delaware 19803

Attention: Vice President-Portfolio Management

Telephone: (302) 477-4071

Facsimile: (303) 477-4032

Email: pquigley@accessgroup.org

[Remainder of Page Intentionally Blank]

-8-

IN WITNESS WHEREOF, the Guarantor and the Secured Party have caused this Agreement to be executed and delivered by its duly authorized officer as of the date set forth above.

ITT EDUCATIONAL SERVICES, INC.
	By	/s/ Kevin M. Modany
	Name	Kevin M. Modany
	Title	Chairman and CEO
DEUTSCHE BANK TRUST COMPANY AMERICAS, as Secured Party
By:	Deutsche Bank National Trust Company
	By	/s/ Susan Barstock
	Name	Susan Barstock
	Title	Vice President
	By	/s/ Mark DiGiacomo
	Name	Mark DiGiacomo
	Title	Assistant Vice President

-9-

EXHIBIT A

to

Guarantee Agreement

Form of Payment Demand

Payment Demand

ITT Educational Services, Inc.

13000 N. Meridian Street

Carmel, IN 46032

Attention: Chief Financial Officer

Deutsche Bank Trust Company Americas, as indenture trustee and collateral agent (the “Secured Party”) under the Indenture and Credit Agreement, dated as of January 20, 2010 (the “Indenture and Credit Agreement”), among PEAKS Trust 2009-1, as the issuer, Deutsche Bank National Trust Company, as the lender trustee, and the Secured Party, hereby demands payment under that certain Guarantee Agreement dated as of January 20, 2010 between ITT Educational Services, Inc. and the Secured Party (the “Guarantee Agreement”). Capitalized terms used in this demand and not otherwise defined shall have the meanings assigned in the Guarantee Agreement, or if not defined in the Guarantee Agreement, in the Indenture and Credit Agreement.

This demand is in respect of payment of a Guaranteed Payment due on                 , 20     (the “Specified Payment Date”). The following table sets forth the amount of Guaranteed Payments due on the Specified Payment Date, the amount of Available Funds and amounts on deposit in the Reserve Account under the Indenture and Credit Agreement available for payment of such Guaranteed Payments on the Specified Payment Date and the amount of the related shortfall (such shortfall, the “Required Payment”).

Guaranteed Payments		Amount of Guaranteed Payment Due	Available Funds and amounts on deposit in the Reserve Account available for payment of such Guaranteed Payments	Required Payment
i.	all Ordinary Administrative Expenses payable on the Specified Payment Date
ii.	all interest payable on the Senior Credit on the Specified Payment Date or at the maturity of the Senior Credit (including as a result of the acceleration of the maturity of the Senior Credit following an event of default under the Indenture and Credit Agreement),
iii.	principal due and payable on the Senior Credit at the maturity of the Senior Credit (including as a result of the acceleration of the maturity of the Senior Credit following an event of default under the Indenture and Credit Agreement),

A-1

iv.	any Call Premium due upon a prepayment in full of the Senior Credit,
v.	on any Specified Payment Date after the Payment Date in February 2012, the Arranging Agent Fee for such Payment Date
vi.	on any Specified Payment Date related to a Monthly Measurement Date on which the Asset/Liability Test is not satisfied, (x) an amount sufficient to reduce the Outstanding Amount of the Senior Credit to an amount that would satisfy the Asset/Liability Test if the Asset/Liability Test were calculated giving effect to such reduction, and (y) any Call Premium that is payable upon a payment of principal on the Senior Credit in the amount set forth in clause (x)
vii.	to the extent not otherwise covered pursuant to clauses (i) - (vi) above, any principal and interest payable on the Senior Credit when due and any Call Premium due upon a prepayment in full of the Senior Credit
Total:

You have agreed in the Guarantee Agreement to pay an amount equal to the Required Payment set forth above. Please make payment of the Required Payment in immediately available funds to the account identified below no later than 4:00 p.m., New York City time, on                      , 20    , which is the Business Day immediately preceding the Specified Payment Date (or, if this Payment Demand was not delivered on or prior to the Business Day immediately following the related Monthly Measurement Date, then by 4:00 p.m. New York City time on the third Business Day following delivery of this Payment Demand).

[Secured Party wire transfer information]

As provided in Section 7 of the Guarantee Agreement, payment received after 4:00 p.m., New York City time, on                      , 20    , which is the Business Day immediately preceding the Specified Payment Date (or, if this Payment Demand was not delivered by the Secured Party on or prior to the Business Day immediately following the related Monthly Measurement Date, then by 4:00 p.m., New York City time, on the third Business Day following delivery of this Payment Demand) will be considered to be a failure of the Guarantor to make a Guaranteed Payment when due.

Very truly yours,

DEUTSCHE BANK TRUST COMPANY AMERICAS, as trustee

By

Its

-2-

EXHIBIT B

to

Guarantee Agreement

Form of Quarterly Report

Quarterly Report

Deutsche Bank Trust Company Americas,

as Indenture Trustee and Collateral Agent

c/o Deutsche Bank National Trust Company

100 Plaza One

Jersey City, NJ 07311-3901

Attention: Susan Barstock

Access Group, Inc.

P.O. Box 7430

5500 Brandywine Parkway

Wilmington, Delaware 19803

Attention: Vice President-Portfolio Management

This certificate is delivered to you pursuant to that certain Guarantee Agreement dated as of January 20, 2010 (the “Guarantee Agreement”) between ITT Educational Services, Inc. and Deutsche Bank Trust Company Americas, as indenture trustee and collateral agent (the “Secured Party”). Capitalized terms used in this certificate and not otherwise defined shall have the meanings assigned in the Guarantee Agreement, or if not defined in the Guarantee Agreement, in the Indenture and Credit Agreement. The undersigned, on behalf of the Guarantor, hereby certifies to the Secured Party and the Administrator that as of the                     , 20     Quarterly Measurement Date, the following (in each case calculated as described in the Indenture and Credit Agreement) is true and correct in all respects:

1. The ratio of the Guarantor’s Debt on such date (exclusive of the amount of Guarantees that under GAAP are not required to be recorded as a liability on the Guarantor’s financial statements) to its EBITDA for the period of the four consecutive fiscal quarters ended on such date was          to 1.00.

2. The ratio of the Guarantor’s Debt on such date (inclusive of the amount of Guarantees that under GAAP are not required to be recorded as a liability on the Guarantor’s financial statements) to its EBITDA for the period of the four consecutive fiscal quarters ended on such date was          to 1.00.

3. The sum of the entries “cash,” “cash equivalents” and “restricted cash” (or any such substantially similar category that is a successor to any such category as noted on the financial statements of the Guarantor) on the balance sheet of the Guarantor, determined in accordance with GAAP, plus Short Term Investments of the Guarantor, was $                    .

B-1

4. The sum of the entries “cash,” “cash equivalents,” “restricted cash” and “short-term investments” (or any such substantially similar category that is a successor to any such category as noted on the financial statements of the Guarantor) on the balance sheet of the Guarantor, determined in accordance with GAAP, plus the amount available to be drawn under a revolving credit facility available to the Guarantor, was $                    .

5. Schools owned and operated by the Guarantor representing [    ]% of the Guarantor’s revenues for the four consecutive fiscal quarters ended on such date were ineligible to receive funds provided pursuant to Title IV of the Higher Education Act of 1965, as amended.

Based on the foregoing, a Trigger is [not] in effect with respect to the above mentioned Quarterly Measurement Date.

IN WITNESS WHEREOF, the Guarantor has caused this certificate to be executed and delivered by its [duly authorized officer] as of the      day of                     , 20    .

ITT EDUCATIONAL SERVICES, INC.

By:

Title:

B-2

EX-10.48

EXHIBIT 10.48

AMENDED AND RESTATED INDENTURE AND CREDIT AGREEMENT

by and among

PEAKS TRUST 2009-1,

DEUTSCHE BANK TRUST COMPANY AMERICAS

as Indenture Trustee and Collateral Agent

and

DEUTSCHE BANK NATIONAL TRUST COMPANY

as Lender Trustee

Dated as of December 31, 2010

TABLE OF CONTENTS

		Page
ARTICLE I
DEFINITIONS AND USE OF PHRASES
ARTICLE II
NOTE DETAILS AND FORM OF NOTES
Section 2.01.	Credit Details		19
Section 2.02.	Execution, Authentication and Delivery of the Notes		20
Section 2.03.	Register; Registration and Transfer of the Credit; Persons Treated as Registered Owners		20
Section 2.04.	Lost, Stolen, Destroyed and Mutilated Notes		22
Section 2.05.	Secured Party’s Certificate of Authentication		22
Section 2.06.	Cancellation and Destruction of Notes by the Secured Party		23
Section 2.07.	Payment of Principal and Interest on Senior Credit; Mandatory Prepayment		23
Section 2.08.	Payment of the Subordinated Note		24
Section 2.09.	Transfer Restrictions		25
Section 2.10.	Subordinated Note Advances		25
Section 2.11.	Conditions to the Senior Note Purchase		25
Section 2.12.	Conditions to the Subordinated Note Advances		27
ARTICLE III
PARITY AND PRIORITY OF LIEN; OTHER OBLIGATIONS
Section 3.01.	Parity and Priority of Lien		27
Section 3.02.	Other Obligations		28
ARTICLE IV
PROVISIONS APPLICABLE TO THE CREDIT; DUTIES OF THE ISSUER; REPRESENTATIONS AND WARRANTIES
Section 4.01.	Payment of Principal and Interest		28
Section 4.02.	Covenants as to Additional Conveyances		29
Section 4.03.	Further Covenants of the Issuer		29
Section 4.04.	Enforcement of Servicing Agreement and Administration Agreement		30
Section 4.05.	Enforcement of Guarantee Agreement; Actions under Basic Documents		31
Section 4.06.	Procedures for Transfer of Funds		32
Section 4.07.	Appointment of Agents		32
Section 4.08.	Continued Existence		32
Section 4.09.	Amendment of Guarantee Agreement, Loan Purchase Agreement and Grogram Guidelines		32
Section 4.10.	Representations; Negative Covenants		32
Section 4.11.	Additional Covenants		37
Section 4.12.	Providing of Notices		39
Section 4.13.	Certain Reports		39

Section 4.14.	Statement as to Compliance	40
ARTICLE V
ACCOUNTS
Section 5.01.	Creation and Continuation of Accounts	40
Section 5.02.	Acquisition Account	41
Section 5.03.	Collection Account	42
Section 5.04.	Reserve Account	44
Section 5.05.	Investment of Funds Held by Secured Party	45
Section 5.06.	Release	46
ARTICLE VI
DEFAULTS AND REMEDIES
Section 6.01.	Events of Default Defined	46
Section 6.02.	Remedy on Default; Possession of Trust Estate	48
Section 6.03.	Remedies on Default	48
Section 6.04.	Remedies on Default; Sale of Trust Estate	49
Section 6.05.	Appointment of Receiver	49
Section 6.06.	Restoration of Position	49
Section 6.07.	Application of Sale Proceeds	50
Section 6.08.	Acceleration of Maturity; Rescission and Annulment	50
Section 6.09.	Remedies Not Exclusive	50
Section 6.10.	Collection of Indebtedness and Suits for Enforcement by Secured Party	51
Section 6.11.	Direction of Secured Party	51
Section 6.12.	Right to Enforce in Secured Party	52
Section 6.13.	Physical Possession of Notes and Loan Notes Not Required	52
Section 6.14.	Waivers of Events of Default	52
Section 6.15.	Guarantee Agreement	53
ARTICLE VII
THE SECURED PARTY
Section 7.01.	Acceptance of Trust	53
Section 7.02.	Recitals of Others	54
Section 7.03.	As to Filing of Agreement	54
Section 7.04.	Secured Party May Act Through Agents	54
Section 7.05.	Indemnification of Secured Party	54
Section 7.06.	Secured Party’s Right to Reliance	56
Section 7.07.	Compensation of Secured Party	56
Section 7.08.	Resignation of Secured Party	57
Section 7.09.	Removal of Secured Party	57
Section 7.10.	Successor Secured Party	57
Section 7.11.	Manner of Vesting Title in Secured Party	58
Section 7.12.	Right of Inspection	58
Section 7.13.	Limitation with Respect to Examination of Reports	59
Section 7.14.	Additional Covenants of Secured Party	59
Section 7.15.	Merger of the Secured Party	59

ii

Section 7.16.	Receipt of Funds from the Servicer	59
Section 7.17.	Survival of Secured Party’s Rights to Receive Compensation, Reimbursement and Indemnification	59
Section 7.18.	Secured Party May File Proofs of Claim	59
Section 7.19.	No Petition	60
ARTICLE VIII
AMENDMENTS AND SUPPLEMENTS
Section 8.01.	Amendments and Supplements Not Requiring Consent of the Creditors	60
Section 8.02.	Amendments and Supplements Requiring Consent of the Guarantor and Creditors	61
Section 8.03.	Rights of Secured Party	62
Section 8.04.	Rights of Administrator	62
ARTICLE IX
GENERAL PROVISIONS
Section 9.01.	Notices	62
Section 9.02.	Covenants Bind Issuer	64
Section 9.03.	Lien Created	64
Section 9.04.	Severability of Lien	64
Section 9.05.	Consent of Creditors Binds Successors	65
Section 9.06.	Nonliability of Persons; No General Obligation	65
Section 9.07.	Laws Governing	65
Section 9.08.	Severability	65
Section 9.09.	Waiver of Jury Trial	65
Section 9.10.	Exhibits	65
Section 9.11.	Non-Business Days	65
Section 9.12.	Parties Interested Herein	65
Section 9.13.	Credit Are Limited Obligations	66
Section 9.14.	Financed Loans	66
Section 9.15.	Concerning the Owner Trustee	66
Section 9.16.	Concerning the Administrator	66
Section 9.17.	Indemnification Obligations of Creditors	67
Section 9.18.	Security Agreement	67
ARTICLE X
PAYMENT AND CANCELLATION OF CREDIT AND SATISFACTION OF AGREEMENT
Section 10.01.	Trust Irrevocable	67
Section 10.02.	Satisfaction of Agreement	67
Section 10.03.	Cancellation of Paid Notes and Loan Notes	67
Section 10.04.	Third-Party Beneficiary; Reports	67
Section 10.05.	Actions by Guarantor as Voting Party	68
Section 10.06.	Tax Treatment	68
EXHIBIT A	ELIGIBLE LOANS ACQUISITION CERTIFICATE	A-1
EXHIBIT B-1	FORM OF SENIOR NOTE	B-1-1

iii

EXHIBIT B-2	FORM OF SUBORDINATED NOTE	B-2-1
EXHIBIT B-3	FORM OF LOAN NOTE	B-2-1
EXHIBIT C	FORM OF ADMINISTRATOR’S PAYMENT DATE CERTIFICATE	C-1
EXHIBIT D-1	FORM OF INVESTMENT LETTER FOR SENIOR NOTES	D-1-1
EXHIBIT D-2	FORM OF INVESTMENT LETTER FOR SUBORDINATED NOTE	D-2-1
EXHIBIT E	FORM OF MONTHLY REPORTS	E-1
EXHIBIT F	FORM OF OFFICER’S CERTIFICATE OF THE SECURED PARTY PURSUANT TO SECTION 2.11(N)	F-1

iv

AMENDED AND RESTATED INDENTURE AND CREDIT AGREEMENT

THIS AMENDED AND RESTATED INDENTURE AND CREDIT AGREEMENT, dated as of December 31, 2010 (as amended, supplemented, restated or otherwise modified from time to time pursuant to the terms hereof, this “Agreement”), is by and among PEAKS TRUST 2009-1, a statutory trust duly organized and existing under the laws of the State of Delaware (the “Issuer”), DEUTSCHE BANK TRUST COMPANY AMERICAS, a banking corporation duly organized and operating under the laws of the State of New York, as indenture trustee (in such capacity, the “Indenture Trustee”) and as collateral agent (in such capacity, the “Collateral Agent” and in its capacities as Indenture Trustee and Collateral Agent, the “Secured Party”), and DEUTSCHE BANK NATIONAL TRUST COMPANY, a national banking association, as lender trustee (the “Lender Trustee”). All capitalized terms used in these preambles and granting clauses shall have the same meanings assigned thereto in Article I hereof.

W I T N E S S E T H :

WHEREAS, the Issuer has been formed as a statutory trust under the laws of the State of Delaware pursuant to the Trust Agreement, dated as of December 23, 2009 (as amended and restated on the Closing Date, the “Trust Agreement”), between Access Group, Inc., as depositor (the “Depositor”) and Deutsche Bank Trust Company Delaware, as owner trustee (the “Owner Trustee”) and that by proper action has duly authorized the execution and delivery of this Agreement, which Agreement (i) provides for the issuance and payment of student loan asset-backed senior notes (the “Senior Notes”) which Senior Notes will be purchased by certain of the Senior Creditors pursuant to the Senior Notes Note Purchase Agreement and a subordinate variable funding note (the “Subordinated Note,” and together with the Senior Notes, the “Notes”) (ii) sets forth the terms and conditions and provides for the repayment of a loan (the “Loan” and together with the Notes, the “Credit”, and together with the Senior Notes, the “Senior Credit”) to be evidenced by a promissory note or notes (the “Loan Notes”) and to be made by the Lender that is party to that certain loan agreement (the “Loan Agreement”) dated as of the Closing Date among the Issuer, the Secured Party and the Lender; and

WHEREAS, pursuant to the Loan Agreement, the Lender has appointed and authorized Deutsche Bank Trust Company Americas to act as Collateral Agent hereunder and to enter into this Agreement on behalf of the Lender and to take all action required or authorized to be taken by the Secured Party under this Agreement on behalf of the Lender; and

WHEREAS, the Secured Party has agreed to accept the trusts herein created upon the terms herein set forth; and

WHEREAS, it is hereby agreed among the Issuer, the Secured Party, the Lender Trustee and the Creditors (each Registered Owner of Notes evidencing its consent by its execution of the related Note Purchase Agreement and the Lender evidencing its consent by its execution of the Loan Agreement) that in the performance of any of the agreements of the Issuer herein contained, any obligation it may thereby incur for the payment of money shall not be general debt on its part, but shall be secured by and payable solely from the Trust Estate, payable in such order of preference and priority as provided herein;

WHEREAS, the Issuer, the Secured Party and the Lender Trustee entered into the original Indenture and Credit Agreement dated January 20, 2010 (the “Original Agreement”);

WHEREAS, the Issuer, the Secured Party and the Lender Trustee, with the consent of the Guarantor and the Majority Priority Class Creditors, wish to amend and restate the Original Agreement; and

NOW, THEREFORE, each of the Issuer and the Lender Trustee, in consideration of the premises and acceptance by the Secured Party of the trusts herein created, of the purchase and acceptance of the Notes by the Registered Owners thereof, of the making of the Loan by the Lender, of the acknowledgement by the Secured Party of the Granting Clauses set forth herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, does hereby GRANT, CONVEY, PLEDGE, TRANSFER, ASSIGN AND DELIVER to the Secured Party, for the benefit of the Creditors, all of the moneys, rights and properties described in the Granting Clauses A through E below (collectively, the “Trust Estate”), as follows:

GRANTING CLAUSE A

The Available Funds (other than moneys paid out or released from the lien of the Trust Estate as provided herein);

GRANTING CLAUSE B

All moneys and investments held in the Accounts created under Section 5.01 hereof, including all proceeds thereof and all income thereon;

GRANTING CLAUSE C

The Financed Loans (other than Financed Loans released from the lien of the Trust Estate as provided herein), the related Promissory Notes, and all obligations of the obligors and any co-obligors thereunder including all moneys accrued and paid thereunder;

GRANTING CLAUSE D

The rights of the Issuer in and to the Servicing Agreement, the Loan Purchase Agreement, and the Administration Agreement, as the same relate to the Financed Loans; and

GRANTING CLAUSE E

All proceeds from any property described in these Granting Clauses and any and all other property, rights and interests of every kind or description that from time to time hereafter is granted, conveyed, pledged, transferred, assigned or delivered to the Secured Party as additional security hereunder.

2

NOTWITHSTANDING ANYTHING HEREIN TO THE CONTRARY, it is understood and agreed that the rights of the Registered Owners of the Subordinated Note with respect to the Trust Estate and the proceeds thereof shall be subordinate in all respects to the rights of the Senior Creditors with respect to the Trust Estate and the proceeds thereof. The Registered Owner of the Subordinated Note, by entering into the Subordinated Note Note Purchase Agreement, agrees that the Subordinated Note will be subordinate in all respects to the Senior Credit.

TO HAVE AND TO HOLD the Trust Estate, whether now owned or held or hereafter acquired, unto the Secured Party and its successors or assigns;

IN TRUST NEVERTHELESS, upon the terms and trusts herein set forth for the equal and proportionate benefit and security of all present and future Senior Creditors, without preference of any Senior Credit over any other, and for enforcement of the payment of the Senior Credit in accordance with their terms, and all other sums payable hereunder or on the Senior Credit, and for the performance of and compliance with the obligations, covenants and conditions of this Agreement, as if all the Senior Credit at any time Outstanding had been executed and delivered simultaneously with the execution and delivery of this Agreement;

PROVIDED, HOWEVER, that if the Issuer, its successors or assigns, shall well and truly pay, or cause to be paid, the principal of the Credit and the interest, Ordinary Administrative Expenses and all other amounts payable pursuant to Section 5.03(b) hereof with respect thereto due and to become due thereon, or provide fully for payment thereof as herein provided, at the times and in the manner mentioned in this Agreement according to the true intent and meaning hereof, and shall make all required payments into the related Account as required under Article V hereof, or shall provide, as permitted hereby, for the payment thereof by depositing with the Secured Party sums sufficient to pay or to provide for payment of the entire amount due and to become so due as herein provided, then this Agreement (other than Section 7.05 hereof) and the rights hereby granted shall cease, terminate and be void and the Trust Estate shall be released to the Issuer; otherwise, this Agreement shall be and remain in full force and effect;

NOW, THEREFORE, it is mutually covenanted and agreed as follows:

ARTICLE I

DEFINITIONS AND USE OF PHRASES

Capitalized terms used herein and not otherwise defined shall have the meanings set forth below, unless the context clearly requires otherwise:

“Access Group” shall mean Access Group, Inc., a Delaware nonstock corporation

“Account” shall mean each of the accounts created pursuant to Section 5.01 hereof.

“Acquisition Account” shall mean the Account by that name created pursuant to Section 5.01 hereof and further described in Section 5.02 hereof, including any Subaccounts created therein.

3

“Administration Agreement” shall mean the Administration Agreement, dated as of January 20, 2010, among the Issuer, the Administrator, the Guarantor, the Owner Trustee and the Secured Party, as amended, supplemented, restated or otherwise modified from time to time pursuant to the terms thereof.

“Administration Fee” shall mean a fee payable to the Administrator on each Payment Date in an amount equal to the product of (i) 1/12, (ii) 0.20% and (iii) the Senior Credit Balance prior to the application of any payments on such Payment Date (or, after the Senior Credit Balance has been reduced to zero, the Outstanding Amount of the Subordinated Note prior to the application of any payments on such Payment Date).

“Administrator” shall mean Access Group, in its capacity as administrator of the Issuer, or any successor thereto in accordance with the Administration Agreement.

“Affiliate” shall mean, with respect to any specified Person, any other Person controlling or controlled by or under common control with such specified Person. For the purposes of this definition, “control” when used with respect to any specified Person means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms “controlling” and “controlled” have meanings correlative to the foregoing.

“Agreement” shall have the meaning set forth in the preambles hereto.

“Amendment” shall mean an amendment hereto executed pursuant to Article VIII hereof.

“Amendment Consent Fee” shall mean 0.50% of the Outstanding Amount of the Senior Credit as of December 31, 2010.

“Arranging Agent” shall mean Deutsche Bank AG, London Branch as arranging agent hereunder, and any successor thereto.

“Arranging Agent Fee” shall mean, with respect to any Payment Date, an amount equal to the product of (i) 1/12 and (ii) the Arranging Agent Fee Rate and (iii) 95.43% of the Senior Credit Balance prior to the application of payments on such Payment Date.

“Arranging Agent Fee Carryover Amount” shall mean, with respect to any Payment Date, an amount equal to all accrued and unpaid Arranging Agent Fees for all prior Payment Dates.

“Arranging Agent Fee Rate” means 1.00% per annum.

“Asset/Liability Ratio” shall mean a fraction determined on each Monthly Measurement Date and expressed as a percentage, the numerator of which is the sum of (a) the aggregate Outstanding Amount of the Financed Loans (other than Defaulted Loans) plus accrued and unpaid interest on such Financed Loans as of the end of the related Collection Period and (b) the amounts on deposit in the Collection Account and the Reserve Account as of the end of the related Collection Period, and the denominator of which is the aggregate Outstanding Amount of the Senior Credit plus accrued and unpaid interest thereon as of the end of the related Collection

4

Period less amounts on deposit in the Acquisition Account as of the end of the related Collection Period. For the purpose of calculating the Asset/Liability Ratio, amounts described in clause (a) of the definition of “Available Funds” and Net Refunded Amounts shall be treated as received during a Collection Period, and included in the balance of the Collection Account or the Acquisition Account, as applicable, if they are received by the Servicer during such Collection Period and thereafter transmitted to the Secured Party prior to the Monthly Measurement Date.

“Asset/Liability Test” shall mean a test which will be satisfied (i) on each Monthly Measurement Date on which no Trigger is in effect, if the Asset/Liability Ratio is greater than or equal to 105% and (ii) on each Monthly Measurement Date on which a Trigger is in effect, if the Asset/Liability Ratio is greater than or equal to 140%.

“Authorized Representative” shall mean the Owner Trustee, the Administrator or any Person duly authorized by the Trust Agreement to act on the Issuer’s behalf.

“Available Funds” shall mean, with respect to a Payment Date, the following amounts received to the extent not previously distributed: (a) all collections received with respect to the Financed Loans, other than Net Refunded Amounts; (b) all interest earned or gain realized from the investment of amounts in the Collection Account, the Reserve Account and the Acquisition Account; (c) on each Payment Date on and after the earlier of (i) the Payment Date in July 2011 or (ii) the first Payment Date immediately following the end of the Transfer Period, any amounts remaining on deposit in the Acquisition Account in excess of the sum of (1) those amounts required for the purchase of additional Participation Interests with respect to Partially Disbursed Student Loans and (2) amounts required for the purchase of Eligible Loans that are scheduled to be disbursed, or Participation Interests for which the first scheduled disbursement is, prior to July 31, 2011, including with respect to the amounts described in clauses (1) and (2), all associated Syndication Agent Fees and Originating Lender Premiums; (d) all amounts received from the Originating Lender pursuant to a repurchase of Financed Loans pursuant to Section 15 of the Loan Purchase Agreement, and (e) on the Payment Date in January 2013, amounts transferred from the Reserve Account.

“Base Financed Loan Balance” shall mean the amount of the proceeds of a Financed Loan (or with respect to a Participation Interest, the related Eligible Loan) disbursed to or for the account of the Guarantor to be credited to the account of a student in payment of a portion of such student’s cost of education, less any payments, refunds, credits or cancellations in respect thereof.

“Basic Documents” shall mean this Agreement, the Trust Agreement, the Servicing Agreement, the Administration Agreement, the Loan Purchase Agreement, the Guarantee Agreement, the Senior Notes Note Purchase Agreement, the Subordinated Note Note Purchase Agreement, the Loan Agreement, the Purchase Obligation Agreement, the Lender Trustee Agreement, the Senior Notes, the Subordinated Note and the Loan Notes.

“Business Day” shall mean any day other than a Saturday, a Sunday, a holiday or any other day on which banks located in New York, New York or the cities in which the Principal Offices of the Secured Party or Administrator are located, are authorized or permitted by law, regulation or executive order to close.

5

“Call Premium” shall mean (i) on any Payment Date on or prior to the Payment Date in January 2011, 3.00% of the Principal Payment Amount for such Payment Date, (ii) on any Payment Date on and after the Payment Date in February 2011 and on or prior to the Payment Date in January 2012, 2.00% of the Principal Payment Amount for such Payment Date and (iii) on any Payment Date on and after the Payment Date in February 2012 and on or prior to the Payment Date in January 2013, 1.00% of the Principal Payment Amount for such Payment Date.

“Certificateholder” shall mean Access Group or any transferee as provided in the Trust Agreement.

“Certificate of Trust” shall mean the certificate filed with the Secretary of State of the State of Delaware establishing the Issuer under Delaware law.

“Closing Date” shall mean January 20, 2010.

“Code” shall mean the Internal Revenue Code of 1986, as amended from time to time. Each reference to a section of the Code herein shall be deemed to include the United States Treasury Regulations, including applicable temporary and proposed regulations, relating to such section which are applicable to the Notes or the use of the proceeds thereof. A reference to any specific section of the Code shall be deemed also to be a reference to the comparable provisions of any enactment which supersedes or replaces the Code thereunder from time to time.

“Collateral Agent” shall mean Deutsche Bank Trust Company Americas, a banking corporation duly organized and operating under the laws of the State of New York, acting in its capacity as collateral agent under this Agreement and the Loan Agreement, or any successor collateral agent designated pursuant to this Agreement.

“Collection Account” shall mean the Account by that name created pursuant to Section 5.01 hereof and further described in Section 5.03 hereof.

“Collection Period” shall mean, (i) with respect to any Payment Date other than the first Payment Date, the calendar month preceding the month in which such Payment Date occurs (unless any Payment Date falls in the calendar month after the month in which such Payment Date would have occurred if the 27th day of the month in which the Payment Date was scheduled to occur was a Business Day, in which case the Collection Period with respect to such Payment Date will be the second calendar month preceding the month of such Payment Date) and (ii) with respect to the first Payment Date, the period beginning on the Closing Date and ending on the last day of the second calendar month preceding the month in which such Payment Date occurs.

“Credit” shall have the meaning set forth in the preambles hereto.

“Creditors” shall mean the Registered Owners of Notes and the Lender.

“Debt” shall mean (a) all indebtedness or other obligations of ITT ESI for borrowed money or for the deferred purchase price of property or services (excluding current accounts payable in the ordinary course of business); (b) all indebtedness or other obligations of any other Person for borrowed money or for the deferred purchase price of property or services, to the

6

extent the payment or collection of which ITT ESI has guaranteed or in respect of which ITT ESI is liable, contingently or otherwise, including, without limitation, liability by way of agreement to purchase, to provide funds for payment, to supply funds to or otherwise to invest in such other Person, or otherwise to assure a creditor against loss, excluding however, (i) endorsements on instruments for collection in the ordinary course of business, and (ii) the amount of any potential liability for guarantees or other payment obligations that under GAAP are not required to be, and have not been, recorded as a liability in ITT ESI financial statements; (c) all indebtedness or other obligations of ITT ESI for borrowed money or for the deferred purchase price of property or services to the extent the same are secured by (or for which the holder of such indebtedness has an existing right, contingent or otherwise, to be secured by) any mortgage, deed of trust, pledge, lien, security interest or other charge or encumbrance upon or in property (including, without limitation, accounts) owned by ITT ESI, whether or not ITT ESI has assumed or become liable for the payment of such indebtedness or obligations, and (d) capitalized lease obligations of ITT ESI; provided, however, that “Debt” shall not include amounts in respect of tuition that is shown as deferred revenue on ITT ESI’s financial statements.

“Defaulted Loan” shall mean a Financed Loan with respect to which (a) any required payment has become more than 180 days delinquent (without regard to whether such payment was later made) or (b) the Servicer has received notice that the borrower is deceased.

“Depositor” shall mean Access Group, and its successors and assigns pursuant to the terms of the Trust Agreement.

“EBITDA” shall mean, for ITT ESI for any period, net income for such period plus (a) without duplication and to the extent deducted in determining net income for such period, the sum of (i) interest expense for such period, (ii) income tax expense for such period, (iii) all amounts attributable to depreciation and amortization expense for such period, (iv) any extraordinary charges for such period and (v) any other non cash charges for such period (but excluding any non-cash charge in respect of an item that was included in net income in a prior period), minus (b) without duplication and to the extent included in net income, any extraordinary gains and any non-cash items of income for such period, all calculated for ITT ESI on a consolidated basis in accordance with GAAP.

“Eligible Institution” shall mean an institution of higher education operated by ITT ESI.

“Eligible Loan” shall mean a student loan that is originated in accordance with the Program Guidelines.

“Eligible Loans Acquisition Certificate” shall mean a certificate of the Administrator in substantially the form attached as Exhibit A hereto.

“ERISA” shall mean the Employee Retirement Income Security Act of 1974, as amended.

“Event of Bankruptcy” shall mean (a) the Issuer or the Guarantor shall have commenced a voluntary case or other proceeding seeking liquidation, reorganization or other relief with respect to itself or its debts under any bankruptcy, insolvency or other similar law now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, custodian or other

7

similar official of it or any substantial part of its property, or shall have made a general assignment for the benefit of creditors, or shall have declared a moratorium with respect to its debts or shall have failed generally to pay its debts as they become due, or shall have taken any action to authorize any of the foregoing; or (b) an involuntary case or other proceeding shall have been commenced against the Issuer or the Guarantor seeking liquidation, reorganization or other relief with respect to it or its debts under any bankruptcy, insolvency or other similar law now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official of it or any substantial part of its property provided such action or proceeding is not dismissed within 60 days.

“Event of Default” shall have the meaning specified in Article VI hereof.

“Final Maturity Date” shall mean (i) with respect to the Senior Credit, the Payment Date in January 2020 and (ii) with respect to the Subordinated Note, the Payment Date in March 2026.

“Financed Loan” shall mean an Eligible Loan or Participation Interest sold to the Issuer pursuant to the Loan Purchase Agreement.

“Fiscal Year” shall mean the fiscal year of the Issuer, which shall be the same as the fiscal year of the Depositor (initially April 1 to March 31) as established from time to time.

“GAAP” shall mean generally accepted accounting principles as in effect from time to time in the United States.

“Gross Refunded Amount” shall mean, with respect to any Refunded Financed Loan, the portion of the Base Financed Loan Balance of such Refunded Financed Loan that is being refunded or credited to the borrower’s account in accordance with the Program Guidelines.

“Guarantee” shall mean any obligation, contingent or otherwise, of the Guarantor guaranteeing or having the economic effect of guaranteeing any indebtedness or other obligation of any other Person (the “primary obligor”) in any manner, whether directly or indirectly, and including any obligation of the Guarantor, direct or indirect, (a) to purchase or pay (or advance or supply funds for the purchase or payment of) such indebtedness or other obligation or to purchase (or to advance or supply funds for the purchase of) any security for the payment thereof, (b) to purchase or lease property, securities or services for the purpose of assuring the owner of such indebtedness or other obligation of the payment thereof or (c) to maintain working capital, equity capital or any other financial statement condition or liquidity of the primary obligor so as to enable the primary obligor to pay such indebtedness or other obligation; provided, that the term “Guarantee” shall not include endorsements for collection or deposit in the ordinary course of business.

“Guarantee Agreement” shall mean the Guarantee Agreement dated as of January 20, 2010 between the Guarantor and the Secured Party, as amended, supplemented, restated or otherwise modified from time to time pursuant to the terms thereof.

“Guaranteed Payments” shall have the meaning ascribed to such term in the Guarantee Agreement.

8

“Guarantor” shall mean ITT ESI.

“Higher Education Act” shall mean the Higher Education Act of 1965, as amended.

“Indenture Trustee” shall mean Deutsche Bank Trust Company Americas, a banking corporation duly organized and operating under the laws of the State of New York, acting in its capacity as indenture trustee under this Agreement, or any successor trustee designated pursuant to this Agreement.

“Initial Loan Balance” means $75,000,000.

“Initial Senior Credit Balance” means the sum of the Initial Senior Notes Balance and the Initial Loan Balance.

“Initial Senior Notes Balance” means $225,000,000.

“Initial Subordinated Note Balance” means $0.

“Interest Accrual Period” shall mean, with respect to the Senior Credit, (i) with respect to the first Payment Date, the period commencing on and including the Closing Date and ending on and including the day immediately preceding such Payment Date and (ii) with respect to each Payment Date thereafter, the period beginning on and including the Payment Date immediately preceding such Payment Date and ending on and including the day immediately preceding such Payment Date.

“Interest Rate” shall mean, with respect to the Senior Credit and any Interest Accrual Period, a per annum rate equal to the LIBOR Rate plus 5.50%.

“Investment Company Act” shall mean the Investment Company Act of 1940, as amended.

“Investment Securities” shall mean:

(a) direct obligations of, or obligations on which the timely payment of the principal of and interest on which are unconditionally and fully guaranteed by, the United States of America;

(b) interest-bearing time or demand deposits, certificates of deposit or other similar banking arrangements with a maturity of one month or less with any bank, trust company, national banking association or other depository institution, including those of the Secured Party, provided that, at the time of deposit or purchase such depository institution has commercial paper which is rated “A-1+” by S&P and “P-1” by Moody’s; and

(c) shares of a money market fund rated at least “AAAm” or “AAAm-G” by S&P and “Aaa” by Moody’s, including funds for which the Secured Party or an Affiliate thereof acts as investment advisor or provides other similar services for a fee.

9

“Issuer” shall mean PEAKS Trust 2009-1, a statutory trust organized and existing under the laws of the State of Delaware, and any successor thereto.

“Issuer Order” shall mean a written order signed in the name of the Issuer by an Authorized Representative and delivered to the Secured Party.

“ITT ESI” shall mean ITT Educational Services, Inc., a Delaware corporation.

“Lender” shall mean Wells Fargo Bank, N.A together with its successors and permitted assigns.

“Lender Trustee Agreement” shall mean the lender trustee agreement dated as of the Closing Date between the Issuer and the Lender Trustee.

“Lender Trustee” shall have the meaning set forth in the preambles hereto.

“LIBOR Business Day” shall mean any day on which banks in London and New York City are open for the transaction of international business.

“LIBOR Rate” shall mean, for any Interest Accrual Period, a rate per annum equal to the rate per annum at which United States dollar deposits having a maturity of one month are offered to prime banks in the London interbank market which appears on Reuters Page LIBOR01 as of approximately 11:00 a.m., London time, on the second LIBOR Business Day preceding the first day of such Interest Accrual Period. If such rate does not appear on Reuters Page LIBOR01, the rate shall be determined on the basis of the rate at which deposits in United States dollars having a maturity of one month are offered to prime banks in the London interbank market by four major banks in the interbank market selected by the Secured Party and in a principal amount of not less than U.S. $1,000,000 and that is representative for a single transaction in such market at such time. The Secured Party shall request the principal London office of each of such banks to provide a quotation of its rate. If at least two quotations are provided, the “LIBOR Rate” shall be the arithmetic mean (rounded upwards, if necessary, to the nearest one-hundredth of one percent) of such offered rates. If fewer than two quotations are provided, the “LIBOR Rate” shall be the arithmetic mean (rounded upwards, if necessary, to the nearest one-hundredth of one percent) of the rates quoted at approximately 11:00 a.m., New York City time, on such date by three major banks in New York, New York selected by the Secured Party for loans in United States dollars to leading European banks having a maturity of one month, and in a principal amount of not less than U.S. $1,000,000; provided, however, that if the banks selected as aforesaid are not quoting as mentioned in this sentence, the “LIBOR Rate” in effect for such Interest Accrual Period shall be the LIBOR Rate in effect for the immediately preceding Interest Accrual Period. Notwithstanding the foregoing, in no event shall the LIBOR Rate be less than 2. 00%. For the avoidance of doubt, with respect to the Interest Accrual Period preceding the January 2011 Payment Date, the LIBOR Rate shall be 2.00% beginning on December 31, 2010.

“Lien” shall mean a security interest, lien, charge, pledge, equity, mortgage or encumbrance of any kind.

“Loan” shall have the meaning set forth in the preambles hereto.

“Loan Agreement” shall have the meaning set forth in the preambles hereto.

10

“Loan Notes” shall have the meaning given to such term in Section 2.01(c) hereof.

“Loan Purchase Agreement” shall mean the Private Education Loan Origination and Sale Agreement dated as of the Closing Date among Access Group, as originating agent, the Originating Lender, the Issuer, the Lender Trustee, the Secured Party and the Guarantor, as amended, supplemented, restated or otherwise modified from time to time pursuant to the terms thereof.

“Majority Priority Class Creditors” shall mean, on any date of determination, Priority Class Creditors that (i) represent more than 50% of the aggregate Outstanding Amount of the Priority Class Credit and (ii) include each Priority Class Creditor that holds 25% or more of the aggregate Outstanding Amount of the Priority Class Credit.

“Maturity” when used with respect to any Note or the Loan, shall mean the date on which the principal thereof becomes due and payable as therein or herein provided, whether at its Final Maturity Date, by earlier prepayment or purchase, or by declaration of acceleration.

“Maximum Subordinated Note Balance” shall mean, with respect to the Subordinated Note, $95,937,703.

“Monthly Interest Amount” shall mean, with respect to the Senior Credit and any Payment Date, the sum of (i) interest accrued on the Outstanding Amount of the Senior Credit as of the first day of the related Interest Accrual Period (after giving effect to payments made on such date) during the related Interest Accrual Period at the Interest Rate and (ii) any Monthly Interest Amount unpaid on the immediately preceding Payment Date, with interest thereon at the Interest Rate for the current Payment Date. Interest on the Senior Credit in respect of any Payment Date will accrue during the related Interest Accrual Period on the basis of a year consisting of 360 days and the actual number of days in such Interest Accrual Period.

“Monthly Measurement Date” shall mean, with respect to a Payment Date, the fifth Business Day preceding such Payment Date.

“Monthly Report” shall have the meaning ascribed to such term in Section 4.13(b) hereof.

“Moody’s” shall mean Moody’s Investors Service, Inc., its successors and assigns.

“Net Refunded Amount” shall mean, with respect to any Refunded Financed Loan, the product of (i) 72% and (ii) the related Gross Refunded Amount.

“Note Purchase Agreement” shall mean the Senior Notes Note Purchase Agreement or the Subordinated Note Note Purchase Agreement, as applicable.

“Notes” shall mean the Senior Notes and the Subordinated Note.

“Officer’s Certificate” shall mean (i) in the case of the Issuer, a certificate signed by any Authorized Representative of the Issuer and delivered to the Secured Party, and (ii) in the case of the Depositor, the Administrator or the Servicer, a certificate signed by any authorized officer of the Depositor, the Administrator or the Servicer, as applicable.

11

“Opinion of Counsel” shall mean one or more written opinions of counsel who may, except as otherwise expressly provided in this Agreement, be employees of or counsel to the Owner Trustee, the Issuer, the Administrator, the Servicer, the Lender Trustee, the Guarantor or an Affiliate of any of the foregoing and who shall be reasonably satisfactory to the Secured Party, and which opinion or opinions shall be addressed to the Secured Party and shall be in form and substance satisfactory to the Secured Party.

“Ordinary Administrative Expenses” shall mean, in respect of each Interest Accrual Period, (i) the Secured Party Fee, (ii) the Owner Trustee Fee, (iii) the Administration Fee, and (iv) the Servicing Fee.

“Originating Lender” shall mean Liberty Bank, N.A.

“Originating Lender Premium” shall mean a premium payable by the Issuer to the Originating Lender for its sale of the Financed Loans in the amount of 1.05% of the Base Financed Loan Balance of each Financed Loan.

“Outstanding” shall mean, (i) when used in connection with the Senior Credit, (a) a Senior Note that has been executed and delivered pursuant to this Agreement and which, at such date of determination, remains unpaid as to principal or interest and (b) the Loan under the Loan Agreement if, at such date of determination, the Loan remains unpaid as to principal or interest and (ii) when used in connection with the Subordinated Note, the Subordinated Note that has been executed and delivered pursuant to this Agreement to the extent the Subordinated Note, at such date of determination, remains unpaid as to principal, in each case excluding any Notes that have been replaced by a new Note pursuant to Sections 2.03 or 2.04 hereof or any Credit with respect to which provision has been made for payment as described in the Basic Documents.

“Outstanding Amount” shall mean (i) with respect to the Financed Loans and any date of determination, the aggregate principal amount of the Financed Loans outstanding at such date of determination, (ii) with respect to the Senior Credit and any Payment Date and on each day during an Interest Accrual Period, the excess of (a) the Initial Senior Credit Balance over (b) the aggregate of amounts actually paid as principal to the holders of the Senior Credit and (iii) ) with respect to the Subordinated Note, the excess of (a) the aggregate amount of Subordinated Note Advances over (b) the sum of (i) the aggregate of amounts actually paid as principal to the holder of the Subordinated Note pursuant to Section 5.03(b) or pursuant to the second to last paragraph of Section 5.02 and (ii) 28% of the Gross Refunded Amount with respect to any Refunded Financed Loan.

“Owner Trustee” shall mean Deutsche Bank Trust Company Delaware, a Delaware banking corporation, solely in its capacity as the owner trustee of the Issuer under the Trust Agreement.

“Owner Trustee Fee” shall mean a fee payable to the Owner Trustee on each Payment Date in an amount equal to the product of (i) 1/12, (ii) 0.01% and (iii) the Senior Credit Balance prior to the application of any payments on such Payment Date (or, after the Senior Credit Balance has been reduced to zero, the Outstanding Amount of the Subordinated Note prior to the application of any payments on such Payment Date).

12

“Partially Disbursed Student Loan” shall have the meaning ascribed to such term in the Loan Purchase Agreement.

“Participation Interests” shall have the meaning ascribed to such term in the Loan Purchase Agreement.

“Payment Date” shall mean the 27th day of each calendar month (or, in the event such 27th day is not a Business Day, the next succeeding Business Day). The initial Payment Date shall be March 1, 2010.

“Payment Date Certificate” shall mean a certificate of the Administrator, substantially in the form of Exhibit C hereto, delivered to the Secured Party pursuant to Section 4.13 hereof.

“Person” shall mean an individual, corporation, partnership, joint venture, association, joint stock company, trust, estate, limited liability company, unincorporated organization or government or agency or political subdivision thereof.

“Plan” shall have the meaning set forth in Section 2.03 hereto.

“Principal Payment Amount” shall mean, (i) on any Payment Date on or prior to the Payment Date in January 2011, the product of (a) 97.08737864% and (b) all Available Funds remaining after payment of amounts in clauses (i) through (iv) of Section 5.03(b), (ii) on any Payment Date on and after the Payment Date in February 2011 and on or prior to the Payment Date in January 2012, the product of (a) 98.03921569% and (b) all Available Funds remaining after payment of amounts in clauses (i) through (iv) of Section 5.03(b), (iii) on any Payment Date on and after the Payment Date in February 2012 and on or prior to the Payment Date in January 2013, the product of (a) 99.00990099% and (b) all Available Funds remaining after payment of amounts in clauses (i) through (iv) of Section 5.03(b), and (iv) on any Payment Date on and after the Payment Date in February 2013, all Available Funds remaining after payment of amounts in clauses (i) through (iv) of Section 5.03(b), in each case, until the Outstanding Amount of the Senior Credit has been reduced to zero.

“Principal Office” shall mean the designated office of the party indicated, as set forth in Section 9.01 hereof or elsewhere in this Agreement.

“Priority Class Credit” shall mean, (i) on any date on which the Outstanding Amount of the Senior Credit is greater than zero, the Senior Credit, and (ii) after the date on which the aggregate Outstanding Amount of the Senior Credit is reduced to zero, the Subordinated Note.

“Priority Class Creditors” shall mean, (i) on any date on which the Outstanding Amount of the Senior Credit is greater than zero, the Senior Creditors, acting as a single class, pro rata, with identical rights and remedies, and (ii) after the date on which the aggregate Outstanding Amount of the Senior Credit is reduced to zero, the Registered Owner of the Subordinated Note.

13

“Program Guidelines” shall mean the Program Guidelines attached to the Loan Purchase Agreement setting forth the requirements, documents and other information relating to the Financed Loans purchased thereunder, as amended as provided in the Loan Purchase Agreement.

“Promissory Note” shall mean the electronic record of the application and loan agreement evidencing a Financed Loan.

“PTCE” shall have the meaning set forth in Section 2.03 hereto.

“Purchase Amount” shall mean with respect to any Financed Loan an amount equal to the Outstanding Amount of such Financed Loan, plus accrued interest thereon to the date of payment.

“Purchase Obligation Agreement” shall mean the purchase obligation agreement dated as of January 20, 2010 among the Guarantor, the Secured Party and the initial Senior Creditors.

“Purchase Price” shall mean, with respect to any Financed Loan, an amount equal to 101.05% of the Base Financed Loan Balance of such Financed Loan, plus accrued and unpaid interest thereon since its origination.

“Quarterly Measurement Date” shall mean the last day of each fiscal quarter of the Guarantor.

“Quarterly Report” shall mean a quarterly report of the Guarantor in substantially the form attached as Exhibit B to the Guarantee Agreement.

“Record Date” shall mean, with respect to any Payment Date, the last Business Day of the month immediately preceding the calendar month in which the Payment Date occurs.

“Refunded Financed Loan” shall mean any Financed Loan for which all or a portion of the Base Financed Loan Balance has been refunded or cancelled in accordance with the Program Guidelines.

“Register” shall have the meaning set forth in Section 2.03.

“Registered Owner” shall mean, with respect to any Note, the Person in whose name such Note is registered in the registration books of the Registrar.

“Registrar” shall have the meaning set forth in Section 2.03 and shall initially be Deutsche Bank Trust Company Americas, as Secured Party.

“Reserve Account” shall mean the Account by that name created pursuant to Section 5.01 hereof and further described in Section 5.04 hereof.

“Reserve Account Deposit” shall mean $36,000,000.

14

“Responsible Officer” shall mean when used with respect to the Secured Party any officer within the corporate trust department of the Secured Party (including any vice president, assistant vice president, treasurer, assistant treasurer, trust officer or any other officer of the Secured Party) (a) who customarily performs functions similar to those performed by the persons who at the time shall be such officers, respectively, or to whom any corporate trust matter is referred because of such person’s knowledge of and familiarity with the particular subject and (b) who shall have direct responsibility for the administration of this Agreement.

“Reuters Page LIBOR01” shall mean the display page so designated on the Reuters Money 3000 Service (or such other page as may replace that page on that service or such other service as may be nominated by the British Bankers’ Association for the purpose of displaying London interbank offered rates for U.S. dollar deposits).

“S&P” shall mean Standard & Poor’s Ratings Group, a Division of The McGraw-Hill Companies, Inc., and its successors and assigns.

“Secured Party” shall have the meaning set forth in the preambles hereto.

“Secured Party Fee” shall mean a fee payable to the Secured Party on each Payment Date in an amount equal to the product of (i) 1/12, (ii) 0.04% and (iii) the Senior Credit Balance prior to the application of any payments on such Payment Date (or, after the Senior Credit Balance has been reduced to zero, the Outstanding Amount of the Subordinated Note prior to the application of any payments on such Payment Date).

“Securities Act” shall mean the Securities Act of 1933, as amended.

“Securities Legend” shall mean the following legend: “THIS NOTE HAS NOT BEEN AND WILL NOT BE REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR REGISTERED OR QUALIFIED UNDER ANY STATE SECURITIES OR BLUE SKY LAW OF ANY STATE. THE HOLDER HEREOF, BY PURCHASING THIS NOTE IN ACCORDANCE WITH THE NOTE PURCHASE AGREEMENT, AGREES THAT THIS NOTE MAY BE REOFFERED, RESOLD, PLEDGED OR OTHERWISE TRANSFERRED ONLY IN COMPLIANCE WITH THE SECURITIES ACT AND OTHER APPLICABLE LAWS AND ONLY PURSUANT TO AN EXEMPTION AVAILABLE UNDER THE SECURITIES ACT AND IN ACCORDANCE WITH ANY APPLICABLE STATE SECURITIES LAWS. BY ITS PURCHASE OF THIS NOTE IN ACCORDANCE WITH THE NOTE PURCHASE AGREEMENT, THE PURCHASER SHALL REPRESENT THAT IT IS (I) AN “ACCREDITED INVESTOR” AS THAT TERM IS DEFINED UNDER RULE 501(a)(1), (2), (3) or (7) OF REGULATION D PROMULGATED UNDER THE SECURITIES ACT OR (II) A “QUALIFIED INSTITUTIONAL BUYER” AS THAT TERM IS DEFINED IN RULE 144A PROMULGATED UNDER THE SECURITIES ACT.”

“Senior Credit” shall have the meaning set forth in the preambles hereto.

“Senior Credit Balance” shall mean, with respect to any date of determination, the sum of the Outstanding Amount of the Senior Notes and the Outstanding Amount of the Loan with respect to such date of determination.

“Senior Creditors” shall mean the Registered Owners of Senior Notes and the Lender.

15

“Senior Notes” shall have the meaning set forth in the preambles hereto.

“Senior Notes Note Purchase Agreement” shall mean the note purchase agreement, dated as of January 20, 2010, between the Issuer and each initial Registered Owner of Senior Notes and acknowledged by the Secured Party, pursuant to which such Registered Owner purchased its Senior Notes, as amended, supplemented, restated or otherwise modified from time to time pursuant to the terms thereof.

“Senior Purchase Price” shall mean, with respect to any Financed Loan, an amount equal to the sum of (i) 72.00% of the Base Financed Loan Balance, (ii) the related Originating Lender Premium and (iii) all accrued and unpaid interest on such Financed Loan since origination.

“Servicer” shall mean Access Group and any other additional servicer or successor servicer selected by the Issuer.

“Servicing and Collections Advisor” shall mean Moehn Management Inc. and any successor thereto selected by the Issuer.

“Servicing Agreement” shall mean the Agreement for Servicing Private Student Loans, dated as of January 20, 2010, among the Issuer, the Secured Party, the Guarantor and Access Group, as Servicer.

“Servicing Fee” shall mean the “Basic Servicing Fee” set forth in the Servicing Agreement.

“Short Term Investments” shall mean:

(a) direct obligations of, or obligations on which the timely payment of the principal of and interest on which are unconditionally and fully guaranteed by, the United States of America with a maturity of one year or less;

(b) interest-bearing time or demand deposits, certificates of deposit or other similar banking arrangements with a maturity of one year or less with any bank, trust company, national banking association or other depository institution, including those of the Secured Party, provided that, at the time of deposit or purchase such depository institution has commercial paper which is rated “A-1+” by S&P and “P-1” by Moody’s; and

(c) shares of a money market fund rated at least “AAAm” or “AAAm-G” by S&P and “Aaa” by Moody’s, including funds for which the Secured Party or an Affiliate thereof acts as investment advisor or provides other similar services for a fee.

“Similar Law” shall have the meaning set forth in Section 2.03 hereto.

“Subaccount” shall mean any subaccount which may be created and established within any Account established pursuant to this Agreement.

16

“Subordinated Note” shall have the meaning set forth in the preambles hereto.

“Subordinated Note Advance” shall mean an advance of moneys by the Registered Owner of the Subordinated Note pursuant to Section 2.01 hereof and evidenced by the Subordinated Note.

“Subordinated Note Funding Date” shall mean each date on which a Subordinated Note Advance is made under the Subordinated Note Note Purchase Agreement.

“Subordinated Note Note Purchase Agreement” shall mean the note purchase agreement, dated as of January 20, 2010, between the Issuer and ITT ESI and acknowledged by the Secured Party, pursuant to which ITT ESI agrees to make Subordinated Note Advances, as amended, supplemented, restated or otherwise modified from time to time pursuant to the terms thereof.

“Subordinated Purchase Price” shall mean, with respect to any Financed Loan, an amount equal to the excess of the Purchase Price for such Financed Loan over the Senior Purchase Price for such Financed Loan.

“Supplement” shall mean an agreement supplemental hereto executed pursuant to Article VIII hereof.

“Syndication Agent” shall mean Deutsche Bank Securities Inc., a Delaware corporation, as syndication agent hereunder, and any successor thereto.

“Syndication Agent Agreement” shall mean the Syndication Agent Agreement dated as of January 20, 2010 among the Syndication Agent, the Issuer and the Guarantor.

“Syndication Agent Fee” shall mean an amount equal to 4.00% of the Base Financed Loan Balance of each Student Loan (or Partially Disbursed Student Loan) purchased (or Participation Interest purchased) by the Issuer.

“Transfer Period” shall mean the period beginning on the Closing Date and ending on the date on which all Eligible Loans originated or approved by the Originating Lender in accordance with the Program Guidelines, prior to its receipt of notice of the occurrence of an Event of Default under this Agreement, have been purchased by the Issuer.

“Trigger” shall mean, with respect to any Payment Date, the occurrence of any of the following as of any prior Quarterly Measurement Date (which has not been cured as of a subsequent Quarterly Measurement Date), in each case as reported by the Guarantor in the related Quarterly Report delivered pursuant to the Guarantee Agreement and calculated for the Guarantor and its majority owned subsidiaries on a consolidated basis (except, with respect to the third and fourth bulleted clauses below, to the extent any such majority owned subsidiary is subject to any restriction that limits such subsidiary’s ability to dividend or distribute to the Guarantor any (i) funds contained in the entries “cash,” “cash equivalents,” “restricted cash” and “short-term investments” (or any such substantially similar category that is a successor to any such category as noted on the financial statements of the Guarantor) on the balance sheet of the Guarantor or (ii) Short Term Investments of the Guarantor):

• the ratio of the Guarantor’s Debt on such date (exclusive of the amount of Guarantees that under GAAP are not required to be recorded as a liability on the Guarantor’s financial statements) to its EBITDA for the period of the four consecutive fiscal quarters ended on such date is greater than 2.50:1.00; or

17

• the ratio of the Guarantor’s Debt on such date (inclusive of the amount of Guarantees that under GAAP are not required to be recorded as a liability on the Guarantor’s financial statements) to its EBITDA for the period of the four consecutive fiscal quarters ended on such date is greater than 3.50:1.00; or

• the sum of the entries “cash,” “cash equivalents” and “restricted cash” (or any such substantially similar category that is a successor to any such category as noted on the financial statements of the Guarantor) on the balance sheet of the Guarantor, determined in accordance with GAAP, plus Short Term Investments of the Guarantor, is less than $100,000,000; or

• the sum of the entries “cash,” “cash equivalents,” “restricted cash” and “short-term investments” (or any such substantially similar category that is a successor to any such category as noted on the financial statements of the Guarantor) on the balance sheet of the Guarantor, determined in accordance with GAAP, plus the amount available to be drawn under a revolving credit facility available to the Guarantor is less than $200,000,000.

• schools owned and operated by the Guarantor representing more than 25% of the Guarantor’s revenues for the four consecutive fiscal quarters ended on such date are ineligible to receive funds provided pursuant to Title IV of the Higher Education Act.

“Trust Agreement” shall have the meaning set forth in the preambles hereto.

“Trust Estate” shall mean the property described as such in the Granting Clauses hereto.

“Voting Party” shall mean, (i) for so long as (a) no Trigger has occurred and is continuing and (b) no default has occurred and is continuing under the Guarantee Agreement, the Guarantor, and (ii) in all other cases, the Majority Priority Class Creditors.

Words importing the masculine gender include the feminine and neuter genders, and words importing the feminine gender include the masculine and neuter genders. Words importing persons include firms, associations and corporations. Words importing the singular number include the plural number and vice versa. Additional terms are defined in the body of this Agreement.

Except as otherwise expressly provided herein, all terms of an accounting or financial nature shall be construed in accordance with GAAP, as in effect from time to time; provided that, if ITT ESI notifies the Secured Party that ITT ESI requests an amendment to any provision hereof that relates to computation of a Trigger to eliminate the effect of any change occurring after the date hereof in GAAP or in the application thereof on the operation of such provision, regardless of whether any such notice is given before or after such change in GAAP or in the

18

application thereof, then such provision shall be interpreted on the basis of GAAP as in effect and applied immediately before such change shall have become effective until such notice shall have been withdrawn or such provision amended in accordance herewith.

ARTICLE II

CREDIT DETAILS AND FORM OF NOTES; SUBORDINATED NOTE ADVANCES

Section 2.01. Credit Details. No Credit may be issued under this Agreement except in accordance with the provisions of this Article. The Senior Notes, together with the Secured Party’s certificate of authentication, shall be issued on the Closing Date in substantially the form set forth in Exhibit B-1 hereto with an aggregate initial principal amount equal to the Initial Senior Notes Balance and the Subordinated Note shall be issued on the Closing Date in substantially the form set forth in Exhibit B-2 hereto. The Loan Notes shall be issued on the Closing Date in substantially the form set forth in Exhibit B-3 hereto with an aggregate initial principal amount equal to the Initial Loan Balance. The Notes and the Loan Notes shall be issued in definitive form, typewritten, printed, lithographed or engraved or produced by any combination of these methods (with or without steel engraved borders), all as determined by the Authorized Representatives executing the Notes and the Loan Notes, as evidenced by their execution of the Notes and the Loan Notes.

(a) Senior Notes. Each Senior Note issued pursuant to this Agreement shall bear interest during each Interest Accrual Period at a per annum rate equal to the Interest Rate. The Outstanding Amount of each Senior Note shall be reflected by a notation on the Register, and such notation shall be adjusted from time to time by the Registrar to reflect decreases in the Outstanding Amount thereof resulting from any principal payments thereon made pursuant to Section 5.03. On each Payment Date, each Senior Note shall be entitled to payment of Call Premium, if any, payable on such Payment Date. No Senior Note may be transferred in a denomination of less than $100,000.

(b) Subordinated Note. The Subordinated Note issued pursuant to this Agreement shall not bear interest. The Outstanding Amount of the Subordinated Note on each Subordinated Note Funding Date shall be reflected by a notation on the Register, and such notation shall be adjusted from time to time by the Registrar to reflect (i) increases in the Outstanding Amount thereof resulting from Subordinated Note Advances being made to the Issuer and (ii) decreases resulting from any principal payments thereon made pursuant to Section 5.03(b) and the second to last paragraph of Section 5.02 and from reductions in the Outstanding Amount of the Subordinated Note equal to 28% of the Gross Refunded Amount of each Refunded Financed Loan. The Subordinated Note shall be issued as a single note representing the entire Outstanding Amount and Maximum Subordinated Note Balance of the Subordinated Note. Subordinated Note Advances shall be made as set forth in Section 2.3 of the Subordinated Note Note Purchase Agreement. Notwithstanding anything to the contrary contained herein, in no event may the Subordinated Note or any portion of the Outstanding Amount thereof or any obligation to make Subordinated Note Advances thereunder be transferred prior to the expiration of the Transfer Period. No Subordinated Note may be transferred in a denomination of less than $5,000,000.

19

(c) Loan. Pursuant to the Loan Agreement, the Lender will make the Loan to the Issuer on the terms and conditions of this Agreement in an amount equal to the Initial Loan Amount. The Loan shall bear interest during each Interest Accrual Period at a per annum rate equal to the Interest Rate. The Outstanding Amount of the Loan shall be reflected by a notation on the Register, and such notation shall be adjusted from time to time by the Registrar to reflect decreases in the Outstanding Amount thereof resulting from any principal payments thereon made pursuant to Section 5.03. On each Payment Date, the Lender shall be entitled to payment of Call Premium, if any, payable on such Payment Date. The Loan shall be evidenced by one or more Loan Notes of the Issuer to the Lender substantially in the form of Exhibit B-3 hereto, dated the Closing Date and otherwise duly completed.

Section 2.02. Execution, Authentication and Delivery of the Notes. The Notes shall be executed in the name and on behalf of the Issuer by the manual signature of an Authorized Representative. The Notes may be manually signed or attested on behalf of the Issuer by any person who, at the date of such act, shall hold the proper office or position, notwithstanding that at the date of authentication, issuance or delivery, such person may have ceased to hold such office or position.

Each Note shall be dated the date of its authentication. A Note shall not be entitled to any benefit under this Indenture or be valid or obligatory for any purpose, unless there appears on such Note a certificate of authentication substantially in the form provided for in Section 2.05 hereof.

Section 2.03. Register; Registration and Transfer of the Credit; Persons Treated as Registered Owners. The Registrar shall keep a register (the “Register”) in which, subject to such reasonable regulations as it may prescribe, the Issuer shall provide for the registration of Credit, the registration of transfers of Credit and the notation of changes in the Outstanding Amount of Credit. The Secured Party shall be the initial “Registrar”, which Registrar shall act solely for purposes of this Section 2.03 as the agent of the Issuer. Upon any resignation of any Registrar, the Issuer shall promptly appoint a successor. Notwithstanding such appointment and with the prior written consent of the Issuer, the Secured Party is hereby authorized to make any arrangements with other institutions which it deems necessary or desirable in order that such institutions may perform the duties of transfer agent or Registrar for the Credit.

Subject to the restrictions set forth herein and in the Loan Agreement, the Lender may at any time sell or assign all or any portion of its interest in the Loan and its rights and the obligations due to it as a Lender pursuant to the terms and conditions of this Agreement and the Loan Agreement. In connection with any such sale or assignment, the Lender shall assign and convey all or a portion of the Loan in accordance with the terms and conditions of this Agreement and the Loan Agreement; provided that the Lender may not sell or assign all or any portion of its interest in the Loan in increments of less than $1,000,000. Upon such a sale or assignment and the recordation of such transfer in the Register, the purchaser shall be treated as a Lender for purposes of this Agreement. The Lender may at any time grant participations in all or part of its interest in the Loan and its rights and the obligations due to it under this Agreement and the Loan Agreement in accordance with the terms of this Agreement and the Loan Agreement.

20

Upon surrender for transfer of a Note or a Loan Note at the Principal Office of the Registrar, duly endorsed for transfer or accompanied by an assignment duly executed by the Registered Owner or the Lender, as applicable, or its attorney duly authorized in writing, and subject to the transfer restrictions of Section 2.09 hereof, within ten Business Days thereafter, (i) the Issuer shall execute and the Secured Party shall authenticate and deliver in the name of the transferee or transferees, one or more new and fully registered Notes or Loan Notes with the same interest rate, Outstanding Amount and Final Maturity Date, as applicable and (ii) the Registrar shall register such transfer in the Register. Each such new Note or Loan Notes shall be payable to such transferee as such transferee may request and shall be substantially in the form of the Note or Loan Note attached as Exhibit B-1, Exhibit B-2 or Exhibit B-3, as applicable. Each such new Senior Note and Loan Note shall be dated and bear interest from the date to which interest shall have been paid on the surrendered Senior Note or Loan Note or dated the date of the surrendered Senior Note or Loan Note if no interest shall have been paid thereon.

The person in whose name a Note or Loan Note shall be registered in the Register shall be deemed and regarded as the absolute owner thereof or Lender with respect thereto, as applicable, for all purposes, and payment of either principal of or interest on such Note or with respect to the applicable portion of the Loan shall be made only to or upon the written order of the Registered Owner or Lender thereof or its legal representative but such registration may be changed as hereinabove provided. All such payments shall be valid and effectual to satisfy and discharge the liability upon such Note or the Loan to the extent of the sum or sums paid.

By execution of the related Note Purchase Agreement, whether upon original issuance or subsequent transfer, each holder of a Note acknowledges the restrictions on the transfer of a Note set forth in the Securities Legend and agrees that it will transfer the Note only as provided herein. By execution of the Loan Agreement or an assignment and assumption executed in connection therewith, each Lender acknowledges the restrictions on the transfer or assignment of the Loan set forth in the Loan Agreement and agrees that it will transfer or assign the Loan only as provided in the Loan Agreement.

No transfer of a Note shall be made unless such transfer is exempt from the registration requirements of the Securities Act and any applicable state securities laws. None of the Issuer, the Secured Party, the Guarantor or the Depositor intends or is obligated to register or qualify any of the Notes or the Loan under the Securities Act or any state securities laws.

The Secured Party shall have no obligation or duty to monitor, determine or inquire as to compliance with any restrictions on transfer imposed under this Agreement or the Loan Agreement or under applicable law with respect to any transfer of any interest in a Note or the Loan other than to require delivery of such certificates and other documentation or evidence as are expressly required by, and to do so if and when expressly required by the terms of, this Agreement or the Loan Agreement, as applicable.

Each initial Registered Owner of a Note and each transferee of a Note shall represent and warrant that such Note may not be acquired by an employee benefit plan or other retirement arrangement subject Section 406 of ERISA or Section 4975 of the Code or by any federal, state, local, non-U.S. or other plan which is subject to substantially similar law (“Similar Law”), (collectively, a “Plan”) or a Person acting on behalf of any such Plan or a Person using the assets

21

of any such Plan, unless the acquisition, holding and disposition of the Note will not give rise to a non-exempt prohibited transaction under Section 406 of ERISA or Section 4975 of the Code because it will satisfy the requirements for exemptive relief under Prohibited Transaction Class Exemption (“PTCE”) 84-14, PTCE 90-1, PTCE 91-38, PTCE 95-60, PTCE 96-23 or the statutory exemption for nonfiduciary service providers under Section 408(b)(17) of ERISA or Section 4975(d)(20) of the Code or another applicable administrative or statutory exemption and in the case of a Plan subject to Similar Law, will not result in a non-exempt violation of such substantially similar law.

Each Registered Owner of a Subordinated Note and each transferee of a Subordinated Note shall represent and warrant that it is either (i) a United States Person within the meaning of Section 7701(a)(30) of the Code and is not a partnership or grantor trust under Section 7701(a)(30) of the Code or that it is an S Corporation within the meaning of Section 1361 of the Code or (ii) a nominee for another holder that satisfies the requirements of clause (i).

The Secured Party shall require the payment by any Creditor requesting the exchange or transfer of a Note of any tax or other governmental charge required to be paid with respect to such exchange or transfer. The applicant for any such transfer or exchange may be required to pay all taxes and governmental charges in connection with such transfer or exchange, other than exchanges pursuant to Section 2.04 hereof.

Section 2.04. Lost, Stolen, Destroyed and Mutilated Notes. Upon receipt by the Secured Party of evidence satisfactory to it of the ownership of and the loss, theft, destruction or mutilation of a Note or Loan Note and, in the case of a lost, stolen or destroyed Note or Loan Note, of indemnity satisfactory to it, and upon surrender and cancellation of the Note or Loan Note, if mutilated, (a) within ten Business Days thereafter, the Issuer shall execute, and the Secured Party shall authenticate and deliver, a replacement Note or Loan Note of the same interest rate, Outstanding Amount, Maximum Outstanding Amount and Final Maturity Date, as applicable, in lieu of such lost, stolen, destroyed or mutilated Note or Loan Note or (b) with respect to the Senior Notes and Loan Notes, if such lost, stolen, destroyed or mutilated Senior Note or Loan Note shall have matured or within 15 days shall be due and payable, in lieu of executing and delivering a new Senior Note or Loan Note as aforesaid, the Issuer may pay the Senior Note or related Lender when so due or payable. Any such new Note or Loan Note shall bear a number not contemporaneously outstanding. The applicant for any such new Note or Loan Note may be required to pay all taxes and governmental charges and all expenses and charges of the Issuer and of the Secured Party in connection with the issuance of the Note or Loan Note. The Notes and the Loan shall be held and owned upon the express condition that, to the extent permitted by law, the foregoing conditions are exclusive with respect to the replacement and payment of mutilated, destroyed, lost or stolen Notes and Loan Notes, negotiable instruments or other securities.

Section 2.05. Secured Party’s Certificate of Authentication. The Secured Party’s certificate of authentication upon the Notes and the Loan Notes shall be substantially in the form attached to the form of the Notes and the Loan Notes attached as Exhibit B-1, Exhibit B-2 and Exhibit B-3 hereto. No Note or Loan Note shall be secured hereby or entitled to the benefit hereof, or shall be valid or obligatory for any purpose, unless a certificate of authentication, substantially in such form, has been duly executed by the Secured Party; and such certificate of

22

the Secured Party upon a Note or Loan Note shall be conclusive evidence and the only competent evidence that such Note or Loan Note has been authenticated and delivered hereunder. The Secured Party’s certificate of authentication shall be deemed to have been duly executed by it if manually signed by a Responsible Officer or signatory of the Secured Party, but it shall not be necessary that the same person sign the certificate of authentication on each Note or Loan Note issued hereunder.

Section 2.06. Cancellation and Destruction of Notes and Loan Notes by the Secured Party. Whenever a Note or Loan Note shall be delivered to the Secured Party for the cancellation thereof pursuant to this Agreement, upon payment of the principal amount and interest represented thereby, or for transfer pursuant to Section 2.03 hereof or replacement pursuant to Section 2.04 hereof, such Note or Loan Note shall be promptly cancelled and shall be disposed of in a manner determined by the Secured Party or shall be returned to the Issuer upon the Issuer’s request.

Section 2.07. Payment of Principal and Interest on Senior Credit; Mandatory Prepayment.

(a) Interest on the Senior Credit shall be payable on each Payment Date as specified in Section 5.03(b)(iii)(a) hereof, subject to Section 4.01 hereof. Amounts paid or duly provided for by the Issuer on each Payment Date shall be paid to the Persons in whose name the Senior Notes and the Loan Notes are registered on the related Record Date by wire transfer in immediately available funds to the account designated by the Registered Owner of such Senior Note or by the Lender with respect to such Loan Notes, as applicable, except for the final installment of principal payable with respect to a Senior Note or the Loan on a Payment Date or at Maturity which shall be payable as provided below. The amount of interest distributable to the Senior Creditors will be calculated by applying the Interest Rate for the Interest Accrual Period to the Outstanding Amount of the Senior Credit as of the first day of the related Interest Accrual Period (after giving effect to payments made on such date) and multiplying that product by the actual number of days in the Interest Accrual Period divided by 360.

(b) The principal of each Senior Note and the Loan shall be payable on each Payment Date as provided in Section 5.03(b)(v)(i) hereof. The entire unpaid principal amount of each such Senior Note and the Loan shall be due and payable, if not previously paid, on its Final Maturity Date or on the date on which an Event of Default shall have occurred and be continuing if the Secured Party or the Majority Priority Class Creditors shall have declared the Senior Credit to be immediately due and payable in the manner provided in Section 6.08 hereof. The Secured Party shall notify the Person in whose name a Senior Note is registered or the Lender with respect to a Loan Note at the close of business on the Record Date preceding the Payment Date on which the Issuer expects that the final installment of principal of and interest on the Senior Credit will be paid. Such notice shall be delivered pursuant to Section 9.01 hereof prior to such final Payment Date and shall specify the place where the Senior Notes and the Loan Notes shall be surrendered for cancellation; provided, however, Senior Creditors are not required to surrender their Senior Notes or Loan Notes in order to receive such final payment at Maturity but shall not be entitled to any further payments on their Senior Credit once such Senior Credit has been paid in full.

23

(c) If the Asset/Liability Ratio computed by the Administrator on any Monthly Measurement Date (i) on which no Trigger is in effect, is less than 105%, the Senior Credit shall be subject to mandatory prepayment on the related Payment Date to the extent necessary to cause the Asset/Liability Ratio to be equal to 105% (computed on such Monthly Measurement Date but after giving effect to such prepayment as if such prepayment had occurred during the related Collection Period) and (ii) on which a Trigger is in effect, is less than 140%, the Senior Credit shall be subject to mandatory prepayment on the related Payment Date to the extent necessary to cause the Asset/Liability Ratio to be equal to 140% (computed on such Monthly Measurement Date but after giving effect to such prepayment as if such prepayment had occurred during the related Collection Period).

(d) In the circumstances described in Section 5.03(c), amounts received from the Guarantor with respect to payments of principal of and interest on the Senior Credit shall be applied as provided in Section 5.03(c).

(e) All payments and prepayments of principal of and interest on the Senior Credit shall be made in lawful money of the United States of America.

Section 2.08. Payment of the Subordinated Note.

(a) The Subordinated Note shall not be entitled to any payments in respect of interest. Amounts paid or duly provided for by the Issuer on the Subordinated Note on a Payment Date on which a payment of principal on the Subordinated Note is due shall be paid to the Person in whose name the Subordinated Note is registered on the related Record Date by wire transfer in immediately available funds to the account designated by the Registered Owner of the Subordinated Note, except for the final installment of principal payable with respect to the Subordinated Note on a Payment Date or at Maturity which shall be payable as provided below.

(b) The principal of the Subordinated Note shall be payable on each Payment Date (i) as provided in Section 5.03(b)(ix) hereof from Available Funds, if any, remaining after Available Funds are applied as provided in Section 5.03(b)(i)-(viii) and (ii) pursuant to the second to last paragraph of Section 5.02. The entire unpaid principal amount of the Subordinated Note shall be due and payable, if not previously paid, at Maturity. The Secured Party shall notify the Person in whose name the Subordinated Note is registered at the close of business on the Record Date preceding the Payment Date on which the Issuer expects that the final installment of principal of the Subordinated Note will be paid. Such notice shall be delivered pursuant to Section 9.01 hereof prior to such final Payment Date and shall specify the place where the Subordinated Note shall be surrendered for cancellation; provided, however, the Registered Owner of the Subordinated Note is not required to surrender the Subordinated Note in order to receive such final payment at Maturity.

24

(c) All payments of principal of the Subordinated Note shall be made in lawful money of the United States of America.

Section 2.09. Transfer Restrictions. Each person who is or who becomes a Registered Owner of a Note shall be deemed by the acceptance or acquisition of its Note to have agreed to be bound by the provisions of this Section. The Registered Owner of each Note (other than the Guarantor as Registered Owner of the Subordinated Note) shall qualify as (i) an institutional “accredited investor” as that term is defined under Rule 501(a)(1), (2), (3) or (7) of Regulation D promulgated under the Securities Act, or (ii) a “qualified institutional buyer” as that term is defined in Rule 144A promulgated under the Securities Act. No Note may be transferred, unless the proposed purchaser or transferee shall have delivered to the Issuer an express agreement substantially in the form of the Investment Letter attached as Exhibit D-1 or Exhibit D-2 hereto, as applicable. Each person who is or who becomes a Lender pursuant to the execution of an assignment and assumption agreement under the Loan Agreement and the registration of transfer of a Loan Note evidencing an interest in the Loan to such Person in accordance with the provisions of this Agreement and the Loan Agreement shall be an “Eligible Assignee” as set forth in the Loan Agreement and have agreed to the restrictions on transfer with respect to its interest in the Loan set forth in the Loan Agreement and this Agreement.

Section 2.10. Subordinated Note Advances. On the terms and conditions set forth in the Subordinated Note Note Purchase Agreement, the Registered Owner of the Subordinated Note shall make Subordinated Note Advances to the Issuer for the purpose of acquiring Eligible Loans pursuant to the terms and provisions of the Loan Purchase Agreement. All such Subordinated Note Advances shall be evidenced by the Subordinated Note and by notations in the Register as provided in Section 2.01(b).

The Secured Party shall deposit the proceeds of each Subordinated Note Advance into the Acquisition Fund on the Business Day of receipt. The Outstanding Amount of the Subordinated Note shall be automatically increased by the amount of Subordinated Note Advances in respect of the Subordinated Note as set forth in Section 2.01(b).

Section 2.11. Conditions to the Loan and Senior Note Purchase. The Registered Owners of Senior Notes will purchase the Senior Notes and the Lender will make the Loan only upon satisfaction or waiver (the purchase of the Senior Notes or the making of the Loan to constitute conclusive evidence of such satisfaction or waiver) of all of the following conditions:

(a) each of the Basic Documents shall have become effective in accordance with its respective terms and shall remain in force and effect and all consents, waivers and approvals necessary for the consummation of the transactions contemplated by such Basic Documents shall have been obtained and shall be in full force and effect , and all other legal matters relating to such Basic Documents and the transactions contemplated thereby, shall be reasonably satisfactory in all respects to the Senior Creditors, and each of the parties to such agreements shall have furnished to the Senior Creditors all documents and information that any of them or their counsel may reasonably request to enable them to pass on such matters;

25

(b) all of the terms, covenants, agreements and conditions of such Basic Documents required to be complied with and performed by the respective parties to such agreements on or prior to the Closing Date shall have been complied with and performed;

(c) each of the representations and warranties contained in this Agreement and such other Basic Documents made by each of the parties to such agreements shall be true and correct in all material respects as of the Closing Date as though made as of such time (except to the extent that they expressly relate to an earlier time, then such representations and warranties shall be true and correct as of such earlier time);

(d) the Syndication Agent, the Secured Party and the Creditors shall have received the opinions addressed to them of Bingham McCutchen LLP, special counsel for the Issuer, dated the Closing Date as to such matters reasonably requested by the Syndication Agent, including that the Senior Credit will be characterized as indebtedness for federal income tax purposes;

(e) the Syndication Agent, the Secured Party and the Creditors shall have received the opinions addressed to them of Dorsey & Whitney (Delaware) LLP, in its capacity as counsel to the Owner Trustee and Delaware counsel to the Issuer, dated the Closing Date and in form and substance satisfactory to the Syndication Agent, the Secured Party and the Creditors;

(f) the Syndication Agent, the Secured Party and the Creditors shall have received an opinion of Dorsey & Whitney LLP, in its capacity as counsel to the Secured Party, dated the Closing Date and in form and substance satisfactory to the Syndication Agent, the Secured Party and the Creditors;

(g) the Syndication Agent, the Secured Party and the Creditors shall have received an opinion of Dorsey & Whitney LLP, in its capacity as counsel to the Lender Trustee, dated the Closing Date and in form and substance satisfactory to the Syndication Agent, the Secured Party and the Creditors;

(h) the Syndication Agent, the Secured Party and the Creditors shall have received an opinion of Foley & Lardner LLP, in its capacity as counsel to the Administrator, dated the Closing Date and in form and substance satisfactory to the Syndication Agent, the Secured Party and the Creditors;

(i) the Syndication Agent, the Secured Party and the Creditors shall have received an opinion of Foley & Lardner LLP, in its capacity as counsel to the Servicer, dated the Closing Date and in form and substance satisfactory to the Syndication Agent, the Secured Party and the Creditors;

(j) the Syndication Agent, the Secured Party and the Creditors shall have received an opinion of counsel to the Guarantor with respect to the Guarantee Agreement in form and substance satisfactory to the Syndication Agent, the Secured Party and the Creditors;

26

(k) the Syndication Agent, the Secured Party and the Creditors shall have received evidence satisfactory to each of them that, on or before the Closing Date, UCC-1 financing statements have been or are being filed in the office of the Secretary of State of the State of Delaware with respect to the Issuer and the office of the Secretary of the State of New York with respect to the Lender Trustee reflecting the grant of the security interest by the Issuer and the Lender Trustee in the Trust Estate and the proceeds thereof to the Secured Party;

(l) the Syndication Agent, the Secured Party and the Creditors shall have received evidence satisfactory to each of them that, on or before the Closing Date, UCC-1 financing statements have been or are being filed in the appropriate filing office reflecting the grant of the security interest pursuant to Section 48 of the Loan Purchase Agreement;

(m) the Syndication Agent, the Secured Party and the Creditors shall have received an Officer’s Certificate of the Issuer dated the Closing Date in form and substance satisfactory to the Syndication Agent, the Secured Party and the Creditors;

(n) the Syndication Agent, the Secured Party and the Creditors shall have received an Officer’s Certificate of the Secured Party (substantially in the form of Exhibit F hereto) dated the Closing Date in form and substance satisfactory to the Syndication Agent, the Secured Party and the Creditors;

(o) the Syndication Agent, the Secured Party and the Creditors shall have received an Officer’s Certificate of the Administrator dated the Closing Date in form and substance satisfactory to the Syndication Agent, the Secured Party and the Creditors; and

(p) the Syndication Agent, the Secured Party and the Creditors shall have received an Officer’s Certificate of the Servicer dated the Closing Date in form and substance satisfactory to the Syndication Agent, the Secured Party and the Creditors.

Section 2.12. Conditions to Subordinated Note Advances. Subordinated Note Advances under the Subordinated Note shall be made by the Registered Owner of the Subordinated Note upon satisfaction or waiver (the purchase of the Subordinated Note to constitute conclusive evidence of such satisfaction or waiver) of the conditions set forth in the Subordinated Note Note Purchase Agreement.

ARTICLE III

PARITY AND PRIORITY OF LIEN; OTHER OBLIGATIONS

Section 3.01. Parity and Priority of Lien. The provisions, covenants and agreements herein set forth to be performed by or on behalf of the Issuer shall be for the equal benefit, protection and security of the Creditors, all of which shall be of equal rank without preference, priority or distinction, except that the Senior Credit shall be senior in preference and priority in all respects to the Subordinated Note and as expressly provided in this Agreement with respect to payments and other priorities.

27

Section 3.02. Other Obligations. The Available Funds and other moneys, Financed Loans, securities, evidences of indebtedness, interests, rights and properties pledged under this Agreement are and will be owned by the Issuer (except that legal title to the Financed Loans will be held by the Lender Trustee, or, with respect to any Financed Loans that are Participation Interests, by the Originating Lender) free and clear of any Lien thereon or with respect thereto prior to, of equal rank with or subordinate to the respective pledges created by this Agreement, except as otherwise expressly provided herein, and all action on the part of the Issuer to that end has been duly and validly taken. If any Financed Loan is found to have been subject to a Lien at the time such Financed Loan was acquired, the Issuer shall cause such Lien to be released. Except as otherwise provided herein, the Issuer shall not create or voluntarily permit to be created any Lien on the Financed Loans which would be on a parity with, subordinate to, or prior to the lien of this Agreement; shall not do or omit to do or suffer to be done or omitted to be done any matter or things whatsoever whereby the lien of this Agreement or the priority of such lien for the Credit hereby secured might or could be lost or impaired; and will pay or cause to be paid or will make adequate provisions for the satisfaction and discharge of all lawful claims and demands which if unpaid might by law be given precedence to or any equality with this Agreement as a Lien upon the Financed Loans; provided, however, that nothing in this Section shall require the Issuer to pay, discharge or make provision for any such Lien so long as the validity thereof shall be contested by it in good faith, unless the Secured Party has been advised the same will endanger the security for the Credit; and provided further that any subordinate Lien on the Trust Estate (i.e., subordinate to the lien securing the Senior Credit and the Subordinated Note) shall be entitled to no payment from the Trust Estate or any portion thereof, nor may any remedy be exercised with respect to such subordinate Lien against any portion of the Trust Estate until all Senior Credit and the Subordinated Note have been paid or deemed paid hereunder.

ARTICLE IV

PROVISIONS APPLICABLE TO THE CREDIT;

DUTIES OF THE ISSUER; REPRESENTATIONS AND WARRANTIES

Section 4.01. Payment of Principal and Interest. The Issuer covenants that it will promptly pay, but solely from the Trust Estate and payments received under the Guarantee Agreement, the principal of and interest and Call Premium, if any, on each and every Note and the Loan at the places, on the dates and in the manner specified herein and in said Notes and the Loan Notes according to the true intent and meaning thereof. The Credit shall be and is hereby declared to be payable from and equally and ratably secured, except that the Senior Credit shall be senior in preference and priority in all respects to the Subordinated Note, by an irrevocable first lien on and pledge of the properties constituting the Trust Estate, subject to the application thereof as permitted by this Agreement, but in no event shall the Creditors have any right (i) to possession or control of the Promissory Notes or any other part of the Trust Estate, which shall be held only by the Servicer as custodian for the Secured Party, or another agent, bailee or custodian approved by the Majority Priority Class Creditors or (ii) to make claims for payment under the Guarantee Agreement except as provided in Section 6.12.

28

Section 4.02. Covenants as to Additional Conveyances. At any and all times, the Issuer will promptly duly execute, acknowledge and deliver, or will promptly cause to be done, executed and delivered, all and every such further acts, conveyances, transfers and assurances in law as is necessary or otherwise as the Secured Party shall reasonably require for the better conveying, transferring and pledging and confirming unto the Secured Party, all and singular, the properties constituting the Trust Estate hereby transferred and pledged, or intended so to be transferred and pledged.

Section 4.03. Further Covenants of the Issuer.

(a) The Issuer will cause financing statements and continuation statements with respect thereto at all times to be filed in the offices of the Secretary of State of the States of Delaware and New York, as necessary to perfect and maintain the security interest granted by the Issuer and the Lender Trustee hereunder.

(b) The Issuer will duly and punctually keep, observe and perform each and every term, covenant and condition on its part to be kept, observed and performed, contained in this Agreement and the other agreements to which the Issuer is a party pursuant to the transactions contemplated herein, including but not limited to the Basic Documents to which it is a party, and will punctually perform all duties required by the Trust Agreement and the laws of the State of Delaware.

(c) The Issuer shall operate on the basis of its Fiscal Year.

(d) The Issuer shall cause to be kept full and proper books of records and accounts, in which full, true and proper entries will be made of all dealings, business and affairs of the Issuer which relate to the Notes and the Loan.

(e) The Issuer, upon written request of the Secured Party, a Creditor or the Guarantor, will permit at all reasonable times the Secured Party, each Creditor and the Guarantor, or their agents, accountants and attorneys, to examine and inspect the property, books of account, records, reports and other data relating to the Financed Loans, and will furnish the Secured Party, each Creditor and the Guarantor such other information as each may reasonably request; provided, however, that the Issuer is not required to provide, or cause to be provided, to any Creditor information which is specific to any Eligible Institution or the Financed Loans that is not otherwise provided in the Monthly Report. The Secured Party shall be under no duty to make any such examination unless requested in writing to do so by the Creditors of at least 66 ²⁄₃% in aggregate Outstanding Amount of the Priority Class Creditors and unless such Creditors shall have offered the Secured Party security and indemnity satisfactory to it against any costs, expenses and liabilities which might be incurred thereby.

(f) The Issuer covenants that electronic copies of all electronic Promissory Notes shall be held and maintained pursuant to the Servicing Agreement.

(g) Notwithstanding anything to the contrary contained herein, except upon the occurrence and during the continuance of an Event of Default hereunder, the Issuer hereby expressly reserves and retains the privilege to receive and, subject to the terms and provisions of this Agreement, to keep or dispose of, claim, bring suits upon or otherwise exercise, enforce or realize upon its rights and interest in and to the Financed

29

Loans and the proceeds and collections therefrom, and neither the Secured Party nor any Creditors shall in any manner be or be deemed to be an indispensable party to the exercise of any such privilege, claims or suit and the Secured Party shall be under no obligation whatsoever to exercise any such privilege, claim or suit.

(h) Other than indebtedness incurred under the Subordinated Note as a result of Subordinated Note Advances in an amount not to exceed the Maximum Subordinated Note Balance, the Issuer shall not incur any indebtedness for borrowed money other than the indebtedness of the Senior Credit issued on the Closing Date.

Section 4.04. Enforcement of Servicing Agreement and Administration Agreement. The Issuer shall:

(a) cause to be diligently enforced, and take all reasonable steps, actions and proceedings necessary for the enforcement of, all terms, covenants and conditions of the Servicing Agreement and the Administration Agreement, including the prompt collection and payment of all amounts due the Issuer under the Servicing Agreement, including, without limitation, all principal and interest payments that relate to any Financed Loans (and in so doing, the Issuer will comply with the Program Guidelines to the extent that they apply to the Financed Loans);

(b) not permit the release of the obligations of the Servicer or the Administrator under the Servicing Agreement or the Administration Agreement, as applicable, except in conjunction with waivers, amendments or modifications permitted by subsections (f) or (g) of this Section;

(c) at all times, to the extent permitted by law, cause to be defended, enforced, preserved and protected the rights and privileges of the Issuer, the Secured Party and the Creditors under or with respect to the Servicing Agreement and the Administration Agreement;

(d) at its own expense, duly and punctually perform and observe each of its obligations to the Servicer under the Servicing Agreement and the Administrator under the Administration Agreement in accordance with the terms thereof;

(e) give the Secured Party prompt written notice of each material default on the part of the Servicer of its obligations under the Servicing Agreement and on the part of the Administrator of its obligations under the Administration Agreement coming to the Issuer’s attention;

(f) not waive any material default by the Servicer under the Servicing Agreement or the Administrator under the Administration Agreement unless (i) the Voting Party consents thereto and (ii) such waiver will not have a material adverse effect on the Senior Creditors;

(g) not consent or agree to or permit any amendment or modification of the “Basic Servicing Fee” under the Servicing Agreement or the Administration Fee unless (i) the Voting Party consents thereto and (ii) such amendment or modification will not have a material adverse effect on the Senior Creditors;

30

(h) if the Servicing Agreement or the Administration Agreement is terminated, secure a replacement Servicer for the Financed Loans or Administrator for the Issuer, as applicable, on substantially similar terms as the Servicing Agreement or the Administration Agreement, respectively. The Issuer must obtain the prior consent of the Voting Party to any such replacement Servicer or Administrator and the terms of the replacement servicing agreement or administration agreement;

(i) through the Servicing and Collections Advisor, direct further collection activities on any Financed Loan that is no longer serviced under the Servicing Agreement, other than due to being paid in full, including the selection of a collection agency and the activities to be undertaken; and

(j) if the existing agreement with the Servicing and Collections Advisor is terminated, secure a replacement servicing and collections advisor for the Financed Loans on substantially similar terms as the existing letter agreement. The Issuer must obtain the prior consent of the Voting Party to any such replacement Servicing and Collections Advisor and the terms of the replacement agreement.

Section 4.05. Enforcement of Guarantee Agreement; Actions under Basic Documents. The Secured Party shall:

(a) cause to be diligently enforced, and take all reasonable steps, actions and proceedings necessary for the enforcement of, all terms, covenants and conditions of the Guarantee Agreement, including making demands thereunder for the prompt payment of all amounts due thereunder, as provided in Sections 5.03(c) hereof;

(b) not permit the release of the obligations of the Guarantor under the Guarantee Agreement except as provided in Sections 4.09 or 6.15;

(c) at all times, to the extent permitted by law, cause to be defended, enforced, preserved and protected the rights and privileges of the Secured Party under or with respect to the Guarantee Agreement;

(d) not agree to waive any material default by the Guarantor under the Guarantee Agreement except as provided in Section 6.15;

(e) not consent or agree to or permit any amendment or modification of the Guarantee Agreement except as provided in Section 4.09; and

(f) not give the notice under Section 1.01(HH)(1)(a) of the Servicing Agreement unless the Guarantor has defaulted under the Guarantee Agreement and will thereafter give notice that the Guarantor is again the Voting Party if such default is cured or waived.

31

Section 4.06. Procedures for Transfer of Funds. In any instance where this Agreement requires a transfer of funds or money from one Account to another, a transfer of ownership in investments or an undivided interest therein may be made in any manner agreeable to the Issuer and the Secured Party, and in the calculation of the amount transferred, interest on the investment which has or will accrue before the date the money is needed in the fund to which the transfer is made shall not be taken into account or considered as money on hand at the time of such transfer.

Section 4.07. Appointment of Agents. The Issuer shall employ and appoint all employees, agents, consultants and attorneys which it may consider necessary.

Section 4.08. Continued Existence. The Issuer agrees that it will do or cause to be done all things necessary to preserve and keep in full force and effect its existence, rights and franchises as a Delaware statutory trust, except as otherwise permitted by this Section. The Issuer further agrees that it will not (a) sell, transfer or otherwise dispose of all or substantially all of its assets (except with respect to sales of Financed Loans as specifically provided herein); (b) consolidate with or merge into another entity; or (c) permit one or more other entities to consolidate with or merge into it. The preceding restrictions in clauses (a), (b) and (c) above shall not apply to a transaction if the transferee or the surviving or resulting entity, if other than the Issuer, by proper written instrument for the benefit of the Secured Party, irrevocably and unconditionally assumes the obligation to perform and observe the agreements and obligations of the Issuer under this Agreement and the other Basic Documents to which the Issuer is a party and the written consent of each of the Creditors and the Guarantor is obtained.

If a transfer, consolidation or merger is made as provided in this Section, the provisions of this Section shall continue in full force and effect and no further transfer shall be made except in compliance with the provisions of this Section.

Section 4.09. Amendment of Guarantee Agreement; Loan Purchase Agreement and Program Guidelines. The Issuer shall notify the Secured Party and each Creditor in writing of any proposed amendment to the Loan Purchase Agreement. The Secured Party shall notify the Issuer and each Creditor in writing of any proposed amendment to the Guarantee Agreement. Neither the Issuer nor the Secured Party shall consent to, nor shall any such amendment become effective unless and until the Secured Party receives the written consent to such amendment from the Majority Priority Class Creditors. The Secured Party shall not consent to any amendment to the Program Guidelines that relates to (i) a change in the terms of the Financed Loans that would be required to be included in the promissory note evidencing the Financed Loans and the Program Guidelines or (ii) the underwriting criteria applicable to the student loans originated in accordance with the Program Guidelines, in each case, without the consent of the Majority Priority Class Creditors.

Section 4.10. Representations; Negative Covenants.

(a) The Issuer hereby makes the following representations and warranties to the Secured Party, the Guarantor and the Creditors on which the Secured Party relies in accepting the Trust Estate and authenticating the Notes and the Loan Notes and on which the Creditors have relied in entering into the related Note Purchase Agreement or the Loan Agreement, as applicable. Such representations and warranties shall survive the transfer and assignment of the Trust Estate to the Secured Party.

32

(i) Organization and Good Standing. The Issuer is duly organized and validly existing under the laws of the State of Delaware, and has the power to own its assets and to transact the business in which it presently engages.

(ii) Due Qualification. The Issuer is duly qualified to do business and is in good standing, and has obtained all material necessary licenses and approvals, in all jurisdictions where the failure to be so qualified, have such good standing or have such licenses or approvals would have a material adverse effect on the Issuer’s business and operations or in which the actions as required by this Agreement require or will require such qualification.

(iii) Authorization. The Issuer has the power, authority and legal right to create and issue the Notes, to execute, deliver and perform this Agreement and to grant (together with the Lender Trustee) the Trust Estate to the Secured Party and the creation and issuance of the Notes and the Loan, execution, delivery and performance of this Agreement and grant of the Trust Estate to the Secured Party have been duly authorized by the Issuer by all necessary statutory trust action.

(iv) Binding Obligation. This Agreement, assuming due authorization, execution and delivery by the Issuer and Secured Party, the Notes in the hands of the Registered Owners thereof and the Loan constitute legal, valid and binding obligations of the Issuer enforceable against the Issuer in accordance with their terms, except that (A) such enforcement may be subject to bankruptcy, insolvency, reorganization, moratorium or other similar laws (whether statutory, regulatory or decisional) now or hereafter in effect relating to creditors’ rights generally and (B) the remedy of specific performance and injunctive and other forms of equitable relief may be subject to certain equitable defenses and to the discretion of the court before which any proceeding therefor may be brought, whether a proceeding at law or in equity.

(v) No Violation. The consummation of the transactions contemplated by this Agreement and the fulfillment of the terms hereof do not conflict with, result in any breach of any of the terms and provisions of or constitute (with or without notice, lapse of time or both) a default under the organizational documents of the Issuer, or any material indenture, agreement, mortgage, deed of trust or other instrument to which the Issuer is a party or by which it is bound, or result in the creation or imposition of any lien upon any of its material properties pursuant to the terms of any such indenture, agreement, mortgage, deed of trust or other instrument, other than this Agreement, nor violate any law or any order, rule or regulation applicable to the Issuer of any court or of any federal or state regulatory body, administrative agency or other governmental instrumentality having jurisdiction over the Issuer or any of its properties.

33

(vi) No Proceedings. There are no proceedings, injunctions, writs, restraining orders or investigations to which the Issuer or any of its Affiliates is a party pending, or, to the best of its knowledge, threatened, before any court, regulatory body, administrative agency or other tribunal or governmental instrumentality (A) asserting the invalidity of this Agreement, (B) seeking to prevent the issuance of any Notes or the Loan or the consummation of any of the transactions contemplated by this Agreement or (C) seeking any determination or ruling that might materially and adversely affect the performance by the Issuer of its obligations under, or the validity or enforceability of this Agreement.

(vii) Approvals. All approvals, authorizations, consents, orders or other actions of any person, corporation or other organization, or of any court, governmental agency or body or official, required on the part of the Issuer in connection with the execution and delivery of this Agreement have been taken or obtained on or prior to the Closing Date.

(viii) Tax and Accounting Treatment. The Issuer shall treat the transactions contemplated by the Loan Purchase Agreement as an absolute transfer rather than as a pledge of the Financed Loans (including the Participation Interests) from the Originating Lender for federal income tax and financial accounting purposes and the Issuer will be treated as the beneficial owner of the Financed Loans and the owner of the Participation Interests for all purposes. The Issuer intends to treat the Credit as its indebtedness or the indebtedness of the Certificateholder for federal, state, county, local and foreign income, franchise and other tax purposes and financial accounting purposes.

(ix) Taxes. The Issuer has filed (or caused to be filed) all federal, state, county, local and foreign income, franchise and other tax returns required to be filed by it through the Closing Date, and has paid all taxes reflected as due thereon. There is no pending dispute with any taxing authority that, if determined adversely to the Issuer, would result in the assertion by any taxing authority of any material tax deficiency, and the Issuer has no knowledge of a proposed liability for any tax year to be imposed upon such entity’s properties or assets for which there is not an adequate reserve reflected in such entity’s current financial statements.

(x) Legal Name. The legal name of the Issuer is “PEAKS Trust 2009-1” and has not changed since its inception. The Issuer has no trade names, fictitious names, assumed names or “doing business as” names under which it conducts its business and has made no filing in respect of any such name.

(xi) Business Purpose. The Issuer will acquire the Financed Loans conveyed to it under the Loan Purchase Agreement for a bona fide business purpose and has undertaken the transactions contemplated herein as principal rather than as an agent of any other Person. The Issuer has no subsidiaries, has operated consistently with all requirements for statutory trusts under the laws of the State of Delaware with respect to its operations and has engaged in no other

34

business or activities other than those specified in this Agreement and the other Basic Documents and in accordance with the transactions contemplated herein and therein.

(xii) Compliance with Laws. The Issuer is in compliance in all material respects with all applicable laws and regulations with respect to the conduct of its business and has obtained and maintains all permits, licenses and other approvals as are necessary for the conduct of its operations, including, without limitation, the purchase, holding and collection of the Financed Loans.

(xiii) Valid Business Reasons; No Fraudulent Transfers. The transactions contemplated by this Agreement are in the ordinary course of the Issuer’s business and the Issuer has valid business reasons for granting the Trust Estate pursuant to this Agreement. At the time of each such grant: (A) the Issuer granted the Trust Estate to the Secured Party without any intent to hinder, delay or defraud any current or future creditor of the Issuer; (B) the Issuer was not insolvent and did not become insolvent as a result of any such grant; (C) the Issuer was not engaged and was not about to engage in any business or transaction for which any property remaining with such entity was an unreasonably small capital or for which the remaining assets of such entity are unreasonably small in relation to the business of such entity or the transaction; (D) the Issuer did not intend to incur, and did not believe and should not have reasonably believed that it would incur, debts beyond its ability to pay as they become due; and (E) the consideration received by the Issuer for the grant of the Trust Estate was reasonably equivalent to the value of the grant.

(xiv) No Management of Affairs. The Issuer is not and will not be involved in the day-to-day management of ITT ESI, the Administrator, the Depositor, or any affiliate of the foregoing.

(xv) Ability to Perform. There has been no material impairment in the ability of the Issuer to perform its obligations under this Agreement.

(xvi) Financial Condition. No material adverse change has occurred in the Issuer’s financial status since the date of its formation.

(xvii) Event of Default. No Event of Default has occurred and no event has occurred that, with the giving of notice, the passage of time, or both, would become an Event of Default.

(xviii) No Material Misstatements or Omissions. No information, certificate of an officer, statement furnished in writing or report delivered to the Secured Party, the Administrator, the Servicer, the Guarantor or any Creditor by the Issuer contains any untrue statement of a material fact or omits a material fact necessary to make such information, certificate, statement or report not misleading.

35

(xix) Grant. It is the intention of the Issuer that the pledge herein contemplated constitutes a grant of a security interest in the Trust Estate to the Secured Party.

(xx) Liens. The Issuer has not caused, suffered or permitted any Lien with respect to the Trust Estate (other than the security interest created in favor of the Secured Party) to be created.

(xxi) Transfer Not Subject to Bulk Transfer Act. No grant of a security interest in the Financed Loans by the Issuer pursuant to this Agreement is subject to any bulk transfer act or any similar statutory provisions in effect in any applicable jurisdiction.

(xxii) No Transfer Taxes Due. No grant of a security interest in the Financed Loans (including all payments due or to become due thereunder) by the Issuer pursuant to this Agreement is subject to or will result in any tax, fee or governmental charge payable by the Issuer to any federal, state or local government.

(b) The Issuer will not:

(i) sell, transfer, exchange or otherwise dispose of any portion of the Trust Estate or any interest therein except as expressly permitted by this Agreement;

(ii) claim any credit on, or make any deduction from, the principal amount of any of the Credit by reason of the payment of any taxes levied or assessed upon any portion of the Trust Estate;

(iii) except as otherwise provided herein, dissolve or liquidate in whole or in part, except with the prior written consent of the Secured Party and, to the extent Credit remains Outstanding, approval of each Creditor;

(iv) permit the validity or effectiveness of this Agreement or any grant hereunder to be impaired, or permit the lien of this Agreement to be amended, hypothecated, subordinated, terminated or discharged, or permit any Person to be released from any covenants or obligations under this Agreement, except as may be expressly permitted hereby;

(v) except as otherwise provided herein, permit any Lien (other than the Lien of this Agreement) to be created on or extend to or otherwise arise upon or burden the Trust Estate or any part thereof or any interest therein or the proceeds thereof;

(vi) permit the Lien of this Agreement on behalf of the Creditors not to constitute a valid, first-priority, perfected security interest in the Trust Estate;

36

(vii) incur or assume any indebtedness or guarantee any indebtedness of any Person whether secured by the Financed Loans under this Agreement or otherwise, except for such obligations as may be incurred by the Issuer in connection with the issuance of the Notes and the Loan pursuant to this Agreement and unsecured trade payables that arise in the ordinary course of its business;

(viii) operate such that it would be consolidated with the Depositor or any other Affiliate and its separate existence disregarded in any federal or state bankruptcy, insolvency or other similar proceeding;

(ix) act as agent of the Guarantor or allow the Guarantor to act as its agent;

(x) except as provided in the Basic Documents, allow the Depositor or any other Affiliate to pay its expenses, guarantee its obligations, or advance funds to it for payment of expenses; or

(xi) consent to the appointment of a conservator or receiver or liquidator in any insolvency, readjustment of debt, marshalling of assets and liabilities or similar proceedings of or relating to the Issuer or of or relating to all or substantially all of its property, or a decree or order of a court or agency or supervisory authority having jurisdiction in the premises for the appointment of a conservator or receiver or liquidator in any insolvency, readjustment of debt, marshalling of assets and liabilities or similar proceedings, or for the winding-up or liquidation of its affairs, shall have been entered against the Issuer; or the Issuer shall not consent to the appointment of a receiver, conservator or liquidator in any insolvency, readjustment of debt, marshalling of assets and liabilities, voluntary liquidation or similar proceedings of or relating to the Issuer or of or relating to all or substantially all of its property; or admit in writing its inability to pay its debts generally as they become due, file a petition to take advantage of any applicable insolvency, bankruptcy or reorganization statute, make an assignment for the benefit of its creditors or voluntarily suspend payment of its obligations.

Section 4.11. Additional Covenants. So long as any Credit is Outstanding:

(a) The Issuer shall not engage in any business or activity other than in connection with the activities contemplated hereby and in the other Basic Documents.

(b) [Reserved].

(c) The funds and other assets of the Issuer shall not be commingled with those of any other Person.

(d) The Issuer shall not be, become or hold itself out as being liable for the debts of any other Person.

(e) The Issuer shall not form, or cause to be formed, any subsidiaries.

37

(f) The Issuer shall act solely in its own name and through its duly authorized officers or agents in the conduct of its business, and shall conduct its business so as not to mislead others as to the identity of the Person with which they are concerned.

(g) The Issuer shall maintain its records and books of account and shall not commingle its records and books of account with the records and books of account of any other Person. The books of the Issuer may be kept (subject to any provision contained in the statutes) inside or outside the State of Delaware at such place or places as may be designated from time to time by the Issuer.

(h) All actions of the Issuer shall be taken by an Authorized Representative.

(i) The Issuer shall not amend, alter, change or repeal any provision contained in this Section without the written consent of each Creditor and the Guarantor with respect to such amendment, alteration, change or repeal.

(j) The Issuer shall not amend its Certificate of Trust or its Trust Agreement without first obtaining the prior written consent of the Majority Priority Class Creditors and the Guarantor.

(k) All audited financial statements of the Issuer that are consolidated with those of any Affiliate thereof will contain detailed notes clearly stating that (i) all of the Issuer’s assets are owned by the Issuer, and (ii) the Issuer is a separate entity from creditors who have received ownership and/or security interests in the Issuer’s assets.

(l) The Issuer will strictly observe legal formalities in its dealings with the Depositor or any Affiliate thereof, and funds or other assets of the Issuer will not be commingled with those of the Depositor or any other Affiliate thereof. The Issuer shall not maintain joint bank accounts or other depository accounts to which the Depositor or any other Affiliate has independent access. None of the Issuer’s funds will at any time be pooled with any funds of the Depositor or any other Affiliate.

(m) Any Person that renders or otherwise furnishes services to the Issuer will be compensated by the Issuer at market rates for such services it renders or otherwise furnishes to the Issuer except as otherwise provided in this Agreement. The Issuer will not hold itself out to be responsible for the debts of the Depositor or the decisions or actions respecting the daily business and affairs of the Depositor.

(n) The Issuer will comply in all material respects with all applicable federal, state and local laws and regulations in connection with its acquisition of the Financed Loans.

(o) Each student loan acquired by the Issuer shall constitute an Eligible Loan and shall have the characteristics described in the Loan Purchase Agreement.

(p) All filings (including, without limitation, Uniform Commercial Code filings) necessary in any jurisdiction to give the Secured Party a first priority perfected security interest in the Trust Estate, including the transfer of Financed Loans from the

38

Originating Lender to the Lender Trustee and the Issuer pursuant to the Loan Purchase Agreement, will be made on the Closing Date and copies of the file stamped financing statements will be delivered to the Secured Party promptly upon such filing.

Section 4.12. Providing of Notices. The Issuer, upon learning of any failure on its part to observe or perform in any material respect any covenant, representation or warranty of the Issuer set forth in this Agreement or the Basic Documents, shall promptly notify the Secured Party upon learning of such failure, which shall in turn promptly notify each Creditor and the Guarantor. In addition, other than routine periodic notices or notices containing information summarized in the reports set forth in Exhibit E hereto, any notices provided pursuant to this Agreement or any other Basic Document, any waivers provided with respect to the Basic Documents, copies of any amendments to the Basic Documents and copies of any opinions delivered in connection with such amendments received by the Secured Party from the Issuer, or provided to the Issuer by the Secured Party shall be delivered by the Secured Party to each Creditor and the Guarantor not more than five Business Days following its receipt or issuance thereof. The Secured Party shall deliver to each Senior Creditor the Quarterly Report of the Guarantor delivered pursuant to the Guarantee Agreement within five (5) Business Days following receipt threreof.

Section 4.13. Certain Reports.

(a) Not later than the Monthly Measurement Date preceding each Payment Date, the Issuer will cause the Administrator to prepare and provide to the Secured Party (and the Secured Party shall provide each Creditor with a copy not later than one Business Day prior to the Payment Date, which delivery may be by e-mail followed by, upon request of a Creditor, a confirming copy by regular mail (postage prepaid)), a direction in the form of Exhibit C hereto (the “Payment Date Certificate”).

(b) The Secured Party shall provide the Creditors with the reports set forth in Exhibit E hereto (each, a “Monthly Report”) within 15 days after each Payment Date, which delivery may be by e-mail followed by, upon request of a Creditor, a confirming copy by regular mail (postage prepaid), subject to the third sentence of this Section 4.13(b). Prior to its delivery of such Monthly Report to the Creditors in accordance with the immediately preceding sentence, the Secured Party shall confirm with the Guarantor that the Guarantor received such Monthly Report at least three Business Days prior to such date. If the Guarantor does not confirm that it received such Monthly Report at least three Business Days prior to such proposed delivery date, the Secured Party shall not distribute such Monthly Report to Creditors until the date that is three Business Days following the date on which the Guarantor received such Monthly Report. The Secured Party will rely solely upon information furnished to it by the Servicer and the Administrator in connection with information contained within the report (other than information relating to the Secured Party’s fees and expenses, the balances of the Accounts and payments made by the Secured Party with respect to principal and interest on the Senior Credit) and the Secured Party shall not be responsible for the veracity of the information contained within such report.

39

(c) On the Business Day prior to each Monthly Measurement Date, the Secured Party shall provide the Administrator with the Outstanding Amount of the Senior Credit as of the first day of the related Interest Accrual Period (after giving effect to payments on such date), the Interest Rate for the related Interest Accrual Period and the balances on deposit within the Collection Account, the Acquisition Account and the Reserve Account, each as of such reporting date and as of the last day of the related Collection Period.

(d) The Secured Party may conclusively rely and accept such reports from the Issuer as fulfilling the requirements of this Section.

Section 4.14. Statement as to Compliance. The Issuer will deliver to the Secured Party, within 120 days after the end of each Fiscal Year, a brief certificate from an Authorized Representative including (a) a current list of the Authorized Representatives, and (b) a statement indicating whether or not to the knowledge of the signers thereof the Issuer is in compliance with all conditions and covenants under this Agreement (including, without limitation, the Issuer’s covenant to maintain and file all financing statements and continuation statements referred to in Section 4.03(a) hereof) and, in the event of any noncompliance, specifying such noncompliance and the nature and status thereof. A copy of the certificate provided pursuant to this Section shall be delivered by the Secured Party to each Creditor not more than five Business Days following its receipt thereof.

ARTICLE V

ACCOUNTS

Section 5.01. Creation and Continuation of Accounts. There are hereby created and established the following Accounts to be held and maintained by the Secured Party for the benefit of the Creditors:

(a) Acquisition Account;

(b) Collection Account; and

(c) Reserve Account.

The Secured Party is hereby authorized for the purpose of facilitating the administration of the Trust Estate and for the administration of the Credit to create further Accounts, or Subaccounts in any of the various Accounts established hereunder, which are deemed necessary or desirable. Notwithstanding the creation of such Subaccounts, moneys therein shall be available for any purpose for which other moneys in the Account of which such Subaccount is a part are authorized to be applied or used.

Moneys on deposit in such Accounts shall be invested in accordance with Section 5.05 hereof.

40

Section 5.02. Acquisition Account. On the Closing Date, $264,000,000 of the proceeds of the Loan and the proceeds of the sale of the Senior Notes shall be deposited into the Acquisition Account. The proceeds of each Subordinated Note Advance under the Subordinated Note shall be deposited into the Acquisition Account on each Subordinated Note Funding Date. All Net Refunded Amounts received by the Secured Party or returned Syndication Agent Fees and Originating Lender Premiums with respect to Refunded Financed Loans, as indicated in the Monthly Report, shall be deposited into the Acquisition Account. The Financed Loans shall be held by the Secured Party or an agent, bailee or custodian approved by the Creditors (which may be the Servicer) and shall be pledged as part of the Trust Estate and held as a part of the Acquisition Account.

Moneys on deposit in the Acquisition Account shall be used, (i) upon receipt by the Secured Party of an Eligible Loans Acquisition Certificate, to acquire Financed Loans pursuant to the Loan Purchase Agreement and to pay the Syndication Agent Fee to the Syndication Agent on each day Financed Loans are purchased by the Issuer, and (ii) on January 6, 2011, to pay to the Senior Creditors the Amendment Consent Fee. As indicated in the related Eligible Loan Acquisition Certificate, (a) the portion of the Purchase Price for each Financed Loan acquired pursuant to the Loan Purchase Agreement equal to the related Senior Purchase Price shall be funded from amounts on deposit in the Acquisition Account in respect of the proceeds of the Loan and the proceeds of the sale of the Senior Notes and (b) the portion of the Purchase Price for each Financed Loan acquired pursuant to the Loan Purchase Agreement equal to the related Subordinated Purchase Price shall be funded from amounts on deposit in the Acquisition Account in respect of the proceeds of Subordinated Note Advances.

Except in connection with the exercise of remedies pursuant to Article VI hereof, or as specifically set forth in the Loan Purchase Agreement, Financed Loans shall not be sold, transferred or otherwise disposed of by the Issuer while any Credit is Outstanding.

As indicated in the related Payment Date Certificate, on each Payment Date on and after the earlier of (i) the Payment Date in July 2011 or (ii) the first Payment Date immediately following the end of the Transfer Period, the Secured Party shall transfer to the Collection Account any amounts remaining on deposit in the Acquisition Account in excess of the sum of (1) those amounts required for the purchase of additional Participation Interests with respect to Partially Disbursed Student Loans and (2) amounts required for the purchase of Eligible Loans that are scheduled to be disbursed, or Participation Interests for which the first scheduled disbursement is, prior to July 31, 2011 (including with respect to the amounts described in clauses (1) and (2), all associated Syndication Agent Fees and Originating Lender Premiums) and such amounts shall become part of Available Funds on such Payment Date. On January 6, 2011, the Secured Party shall withdraw the Amendment Consent Fee from amounts on deposit in the Acquisition Account and pay such amount to the Senior Creditors, pro rata, based on the Outstanding Amount of the Senior Credit.

If any proceeds of a Subordinated Note Advance on deposit in the Acquisition Account were intended for the purchase of an Eligible Loan with respect to which all or a portion of such Eligible Loan has been refunded or cancelled in accordance with the Program Guidelines prior to purchase of such Eligible Loan by the Issuer, the Secured Party shall pay the applicable portion of such Subordinated Note Advance to the Servicer for the account of Registered Owner of the Subordinated Note and the Outstanding Amount of the Subordinated Note shall be reduced by the amount so paid.

41

As indicated in the related Eligible Loan Acquisition Certificate, (i) the Secured Party shall be permitted to reduce any Syndication Agent Fees payable to the Syndication Agent by the amount of Syndication Agent Fees previously paid to the Syndication Agent in respect of any Financed Loan that became a Refunded Financed Loan for which the Syndication Agent has not returned such Syndication Agent Fees to the Issuer and (ii) the Secured Party shall be permitted to reduce the Purchase Price for any Eligible Loan by the amount of Originating Lender Premiums previously paid to the Originating Lender as part of the Purchase Price for any Financed Loan that became a Refunded Financed Loan for which the Originating Lender has not returned such Originating Lender Premiums to the Issuer.

Section 5.03. Collection Account.

(a) Deposits to Collection Account. There shall be deposited to the Collection Account (i) all Available Funds and (ii) any other amounts deposited thereto upon receipt of an Issuer Order. Available Funds on deposit in the Collection Account shall be used to make the payments described in subsection (b) of this Section. The Secured Party may conclusively rely on all written instructions of the Administrator described in this Agreement with no further duty to examine or determine the accuracy of the information contained in any Payment Date Certificate or Issuer Order; provided, however, the Secured Party shall verify the receipt of sufficient Available Funds on the Payment Date to make the payments provided for in the Payment Date Certificate.

(b) Payments on Payment Dates. The Administrator shall instruct the Secured Party in writing no later than the Monthly Measurement Date preceding each Payment Date (pursuant to the Payment Date Certificate and subject to the receipt of sufficient Available Funds) to make the following deposits and distributions from Available Funds on deposit in the Collection Account received on or prior to such Payment Date (including any amounts required to be transferred from the Reserve Account pursuant to Section 5.04 hereof as set forth in the Payment Date Certificate) to the Persons or to the Account specified below on such Payment Date, in the following order of priority, and the Secured Party shall comply with such instructions to the extent of Available Funds:

(i) to pay to the Secured Party, the Owner Trustee, the Administrator and the Servicer, pro rata, based on amounts owed to each such party, without preference or priority of any kind, the Secured Party Fee, the Owner Trustee Fee, the Administration Fee and the Servicing Fee, respectively, due on such Payment Date, in each case, together with such fees remaining unpaid from prior Payment Dates;

(ii)

(A) on any Payment Date prior to the occurrence of an Event of Default, to pay to the Secured Party, the Owner Trustee, the Lender Trustee, the Administrator, the Servicer and the Originating Lender, pro rata, based on amounts owed to each such party, without preference or priority of any kind, extraordinary fees and expenses or indemnification amounts owed to such party

42

by the Issuer pursuant to the Basic Documents or any costs and expenses of replacing the Secured Party, the Owner Trustee, the Lender Trustee, the Servicer or the Administrator (but only to the extent required under the terms of the Basic Documents), up to an annual cap equal to $200,000, due on such Payment Date; and

(B) on any Payment Date on or after the occurrence of an Event of Default, sequentially, as follows:

(1) first, to pay to the Secured Party, extraordinary fees and expenses or indemnification amounts owed to the Secured Party by the Issuer pursuant to the Basic Documents or any costs and expenses of replacing the Secured Party (but only to the extent required under the terms of the Basic Documents) due on such Payment Date, up to an aggregate maximum amount (including all such payments on prior Payment Dates) of $350,000; and

(2) to pay to the Owner Trustee, the Lender Trustee, the Administrator, the Servicer and the Originating Lender, pro rata, based on amounts owed to each such party, without preference or priority of any kind, extraordinary fees and expenses or indemnification amounts owed to such party by the Issuer pursuant to the Basic Documents or any costs and expenses of replacing the Owner Trustee, the Lender Trustee, the Servicer or the Administrator (but only to the extent required under the terms of the Basic Documents), up to an annual cap equal to $200,000, due on such Payment Date.

(iii) pro rata, based on amounts owed to each such party, without preference or priority of any kind, (a) to pay to the Senior Creditors, with each Senior Creditor receiving a pro rata amount based upon the amount owed to such Senior Creditor, without preference or priority of any kind, the Monthly Interest Amount due on such Payment Date and (b) to pay to the Arranging Agent, the Arranging Agent Fee due on such Payment Date;

(iv) to pay to the Arranging Agent any Arranging Agent Fee Carryover Amount for such Payment Date;

(v) concurrently, to the Senior Creditors (i) the Principal Payment Amount, in repayment of principal until the Outstanding Amount of the Senior Credit is reduced to zero and (ii) on or prior to the Payment Date in January 2013, the Call Premium for such Payment Date;

(vi) to pay to the Senior Creditors, any amounts due to the Senior Creditors pursuant to Section 15 of the Senior Notes Note Purchase Agreement or the Loan Agreement, as applicable;

(vii) to pay to the Secured Party, the Owner Trustee, the Lender Trustee, the Administrator, the Servicer and the Originating Lender, pro rata, based on amounts owed to each such party, without preference or priority of any

43

kind, any extraordinary fees and expenses or indemnification amounts due and owing to such party by the Issuer pursuant to the Basic Documents as of such Payment Date and not previously paid pursuant to clause (ii) above;

(viii) to the Guarantor, the amount of any payments made by the Guarantor under the Guarantee Agreement until the Guarantor has been reimbursed in full for all such payments;

(ix) to the Registered Owner of the Subordinated Note until the Outstanding Amount of the Subordinated Note has been reduced to zero; and

(x) transfer any remaining amount to the Issuer for distribution in accordance with the terms of the Trust Agreement.

(c) Payments Under the Guarantee Agreement. On any Monthly Measurement Date, if there are insufficient Available Funds and amounts on deposit in the Reserve Account as of the end of the related Collection Period to pay the amount of a Guaranteed Payment on such Payment Date, the Administrator shall notify the Secured Party in the Payment Date Certificate and the Secured Party shall make a demand upon the Guarantor for a payment under the Guarantee Agreement of the amount of the Guaranteed Payment due under the Guarantee Agreement on such Payment Date. The Secured Party shall deposit any amounts received in respect of a Guaranteed Payment under the terms of the Guarantee Agreement into the Collection Account and apply such amounts to the payment of Guaranteed Payments in the amount and order of priority provided in clause (b) above. Amounts paid by the Guarantor pursuant to the Guarantee Agreement shall not be considered part of Available Funds on any Payment Date.

Section 5.04. Reserve Account. On the Closing Date there shall be deposited to the Reserve Account an amount equal to the Reserve Account Deposit.

On each Payment Date, as specified in the Payment Date Certificate, the Secured Party shall withdraw amounts on deposit in the Reserve Account, and make the following payments from such amounts in the following order of priority, to the extent unpaid from Available Funds pursuant to Section 5.03(b):

(i) to pay to the Secured Party, the Owner Trustee, the Administrator and the Servicer, pro rata, based on amounts owed to each such party, without preference or priority of any kind, the Secured Party Fee, the Owner Trustee Fee, the Administration Fee and the Servicing Fee, respectively, due on such Payment Date, in each case, together with such fees remaining unpaid from prior Payment Dates; and

(ii) to pay to the Senior Creditors, with each Senior Creditor receiving a pro rata amount based upon the amount owed to such Senior Creditor, without preference or priority of any kind, the Monthly Interest Amount due on such Payment Date.

44

To the extent amounts are on deposit in the Reserve Account on the Monthly Measurement Date in January 2013 or on any Monthly Measurement Date thereafter, all amounts remaining on deposit therein shall be withdrawn and transferred to the Collection Account and become part of Available Funds on the related Payment Date.

Section 5.05. Investment of Funds Held by Secured Party. The Secured Party shall invest money held for the credit of the Collection Account, the Reserve Account and the Acquisition Account, including any Subaccount of such Accounts, held by the Secured Party hereunder as directed in writing by an Authorized Representative of the Issuer, to the fullest extent practicable and reasonable, in Investment Securities which shall mature or be redeemed at par value at the option of the holder prior to the respective dates when the money held for the credit of such Account will be required for the purposes intended, but no later than the next Payment Date. In the absence of any such direction and to the extent practicable, the Secured Party shall invest amounts held hereunder in those Investment Securities described in clause (c) of the definition of Investment Securities. All such investments shall be held by (or by any custodian on behalf of) the Secured Party and, if in registered form shall be registered in the name of the Secured Party and all interest and other investment income collected (net of losses and investment expenses) on funds on deposit in the Collection Account, the Reserve Account and the Acquisition Account shall be deposited into the Collection Account when received. The Secured Party and the Issuer hereby agree that unless an Event of Default shall have occurred and be continuing hereunder, the Issuer acting by and through an Authorized Representative shall be entitled to, and shall, provide written direction to the Secured Party with respect to any discretionary acts required or permitted of the Secured Party under any Investment Securities and the Secured Party shall not take such discretionary acts without such written direction.

The Investment Securities purchased shall be held by the Secured Party and shall be deemed at all times to be held for the credit of such Account or Subaccounts or combination thereof, and the Secured Party shall inform the Issuer of the details of all such investments. The Secured Party shall present for redemption any Investment Securities purchased by it as an investment whenever it shall be necessary to provide money to meet any payment from the applicable Account. The Secured Party shall, on or before the fifteenth day of each calendar month (or such later date as reasonably consented to by the Issuer), provide the Issuer with a monthly statement which shall list all investments held for the credit of each applicable Account in its custody under the provisions of this Agreement as of the end of the preceding month and the balance thereof, and shall list any investments which were sold or liquidated during such preceding calendar month.

Money in any Account constituting a part of the Trust Estate may be pooled for the purpose of making investments and may be used to pay accrued interest on Investment Securities purchased. The Secured Party and its affiliates may act as principal or agent in the acquisition or disposition of any Investment Securities.

Notwithstanding the foregoing, the Secured Party shall not be responsible or liable for any losses on investments made by it hereunder or for keeping all funds held by it, fully invested at all times, its only responsibility being to comply with the written investment instructions of the Issuer or its designee in a non-negligent manner.

45

The Issuer acknowledges that to the extent the regulations of the Comptroller of the Currency or other applicable regulatory agency grant the Issuer the right to receive brokerage confirmations of security transactions, the Issuer waives receipt of such confirmations.

Section 5.06. Release.

(a) The Secured Party shall, upon Issuer Order and subject to the provisions of this Agreement, take all actions reasonably requested by the Issuer to effect the release of a Financed Loan from the lien of this Agreement to the extent the terms hereof expressly permit the sale, disposition or transfer of the Financed Loan.

(b) Subject to the payment of its fees and expenses pursuant to Sections 7.05 and 7.07 hereof, the Secured Party may, and when required by the provisions of this Agreement shall, execute instruments to release property from the lien of this Agreement, or convey the Secured Party’s interest in the same, in a manner and under circumstances that are not inconsistent with the provisions of this Agreement. No party relying upon an instrument executed by the Secured Party as provided in this Article shall be bound to ascertain the Secured Party’s authority, inquire into the satisfaction of any conditions precedent or see to the application of any moneys.

(c) The Secured Party shall, at such time as no Credit is Outstanding and all sums due the Secured Party pursuant to Sections 7.05 and 7.07 hereof and all amounts payable to the Secured Party, the Owner Trustee, the Lender Trustee, the Administrator, the Servicer, the Originating Lender and the Guarantor have been paid, release any remaining portion of the Trust Estate that secured the Credit from the lien of this Agreement and release to the Issuer or any other Person entitled thereto any funds then on deposit in the Accounts.

ARTICLE VI

DEFAULTS AND REMEDIES

Section 6.01. Events of Default Defined. For the purpose of this Agreement, the following events are hereby defined as, and are declared to be, “Events of Default”:

(a) default in the due and punctual payment of any interest on any Senior Credit when the same becomes due and payable, and such default shall continue for a period of five (5) Business Days;

(b) default in the due and punctual payment of the principal of any Note or the Loan when the same becomes due and payable;

(c) default in the performance or observance of any of the covenants, agreements or conditions on the part of the Issuer contained in Sections 4.02, 4.03(a), (d) and (f), 4.04(a), 4.05, 4.07, 4.08, 4.09, 4.10(b)(i), 4.10(b)(iii)-(vii) and 4.11;

(d) default in the performance or observance of any of the other covenants, agreements or conditions on the part of the Issuer to be kept, observed and performed

46

contained in this Agreement or in the Notes or the Loan Notes (other than those referred to in Sections 6.01(a), (b) and (c)) and such default is not remedied within 30 days after the earlier of (i) an Authorized Representative of the Issuer obtaining actual knowledge of such default and (ii) the Issuer receiving written notice of such default from any Creditor or the Secured Party (any such written notice to be identified as a “notice of default” and to refer specifically to this Section 6.01(d)); provided, that if the default is such that it can be corrected but not within 30 days, it shall not constitute an Event of Default if corrective action is undertaken by the Issuer within such 30 day period and such default is cured within 90 days;

(e) the breach of any representation or warranty of the Issuer in this Agreement, the Senior Notes Note Purchase Agreement or the Loan Agreement, and such breach is not remedied within 30 days after the earlier of (i) an Authorized Representative of the Issuer obtaining actual knowledge of such breach and (ii) the Issuer receiving written notice of such breach from any Creditor or the Secured Party (any such written notice to be identified as a “notice of default” and to refer specifically to this Section 6.01(e));

(f) (i) the Guarantee Agreement shall cease to be in full force and effect as an enforceable instrument or the Guarantor (or any other Person at its authorized direction or on its behalf) shall assert in writing that the Guarantee Agreement is unenforceable, (ii) any default in making a required payment when due under the Guarantee Agreement shall occur and be continuing or (iii) there is a waiver of a default in making a required payment when due under the Guarantee Agreement by the Secured Party other than in accordance with Section 6.15 hereof;

(g) other than as set forth in clause (f) above, (i) any breach of the representations, warranties and covenants contained in Section 8(i) or Section 9 of the Guarantee Agreement or (ii) the breach of any representation, warranty or covenant of the Guarantor in the Guarantee Agreement other than as set forth in clause (i) above, and such breach is not remedied within 30 days after the earlier of (a) an authorized representative of the Guarantor obtaining actual knowledge of such breach and (b) the Guarantor receiving written notice of such breach from the Secured Party (any such written notice to be identified as a “notice of default” and to refer specifically to this Section 6.01(g)); and

(h) the occurrence of an Event of Bankruptcy;

(i) the Issuer defaults in the performance of or compliance with any term contained in Section 7.1(d) or Section 10 of the Senior Notes Note Purchase Agreement or the Loan Agreement;

(j) the Issuer defaults in the performance of or compliance with any term contained in the Senior Notes Note Purchase Agreement or the Loan Agreement and such default is not remedied within 30 days after the earlier of (i) a Responsible Officer obtaining actual knowledge of such default and (ii) the Issuer receiving written notice of such default from any Creditor; and

47

(k) a final judgment or judgments for the payment of money aggregating in excess of $1,000,000 are rendered against the Issuer and which judgments are not, within 60 days after entry thereof, bonded, discharged or stayed pending appeal, and are not discharged within 60 days after the expiration of such stay.

Any notice herein provided to be given to the Issuer or the Guarantor with respect to any default shall be deemed sufficiently given if delivered by hand or sent by overnight courier or registered mail with postage prepaid to its Principal Office and to the Administrator at its Principal Office. The Secured Party may, and shall if requested to do so in writing by a Creditor, give such notice.

Section 6.02. Remedy on Default; Possession of Trust Estate. Subject to Sections 6.08, 7.05 and 7.07 hereof, upon the happening and continuance of any Event of Default, the Secured Party may, or at the direction of the Majority Priority Class Creditors, shall, take possession of such portion of the Trust Estate as shall be in the custody of others, and all property comprising the Trust Estate, and each and every part thereof, and exclude the Issuer and its agents, servants and employees wholly therefrom, and have, hold, use, operate, manage, and control the same and each and every part thereof, and in the name of the Issuer or otherwise, as it shall deem best, conduct the business thereof and exercise the privileges pertaining thereto and all the rights and powers of the Issuer and use all of the then existing Trust Estate for that purpose, and collect and receive all charges, income and Available Funds of the same and of every part thereof, and after deducting therefrom all expenses incurred hereunder in the collection of such amounts, the Secured Party shall apply the rest and residue of the money received by the Secured Party in accordance with the priority of payments set forth in Section 5.03(b).

Upon the occurrence of an Event of Default described in Sections 6.01(a) or (b) hereof and prior to an acceleration of maturity of the Credit pursuant to Section 6.08 hereof, any Available Funds received by the Secured Party shall be immediately distributed pursuant to this Section. Upon the occurrence of an Event of Default and an acceleration of the maturity of the Credit pursuant to Section 6.08 hereof, the Secured Party may fix a record date and payment date for any payment to Creditors pursuant to this Section. At least 15 days before such record date, the Secured Party shall deliver in accordance with the provisions of Section 9.01 hereof to each Creditor and the Issuer a notice that states the record date, the payment date and the amount to be paid.

Section 6.03. Remedies on Default. Upon the happening of any Event of Default, the Secured Party shall proceed to protect and enforce its rights and those of the Creditors as directed pursuant to the provisions of Section 6.11 hereof and, in the event no direction is received from the Majority Priority Class Creditors, in such manner as counsel for the Secured Party may advise, whether for the specific performance of any covenant, condition, agreement or undertaking herein contained, or in aid of the execution of any power herein granted, or for the enforcement of such other appropriate legal or equitable remedies as may be more effectual to protect and enforce the rights aforesaid.

48

Section 6.04. Remedies on Default; Sale of Trust Estate. Upon the happening of any Event of Default and if the principal of all of the Outstanding Credit shall have been declared due and payable, then and in every such case, and irrespective of whether other remedies authorized shall have been pursued in whole or in part, the Secured Party may, or at the direction of the Majority Priority Class Creditors, shall, sell, with or without entry, to the highest bidder all or any portion of the Trust Estate, and all right, title, interest, claim and demand thereto and the right of redemption thereof, at any such place or places, and at such time or times and upon such notice and terms as may be required by law. Upon such sale the Secured Party may make and deliver to the purchaser or purchasers a good and sufficient assignment or conveyance for the same, which sale shall be a perpetual bar both at law and in equity against the Issuer and all Persons claiming such properties. No purchaser at any sale shall be bound to see to the application of the purchase money or to inquire as to the authorization, necessity, expediency or regularity of any such sale. The Secured Party is hereby irrevocably appointed the true and lawful attorney-in-fact of the Issuer, in its name and stead, to make and execute all bills of sale, instruments of assignment and transfer and such other documents of transfer as may be necessary or advisable in connection with a sale of all or part of the Trust Estate, but the Issuer, if so requested by the Secured Party, shall ratify and confirm any sale or sales by executing and delivering to the Secured Party or to such purchaser or purchasers all such instruments as may be necessary, or in the judgment of the Secured Party, proper for the purpose which may be designated in such request. In addition, the Secured Party may proceed to protect and enforce the rights of the Secured Party and the Creditors in such manner as directed pursuant to the provisions of Section 6.11 hereof and, in the event no direction is received from the Majority Priority Class Creditors, in such manner as counsel for the Secured Party may advise, whether for the specific performance of any covenant, condition, agreement or undertaking herein contained, or in aid of the execution of any power herein granted, or for the enforcement of such other appropriate legal or equitable remedies as may be more effectual to protect and enforce the rights aforesaid. The Secured Party shall take any such action or actions if requested to do so in writing by the Majority Priority Class Creditors.

Notwithstanding the foregoing and subject to Section 15 of the Loan Purchase Agreement, the Secured Party is prohibited from selling the Financed Loans during the occurrence and continuance of an Event of Default, other than a default in the payment of any principal or interest on any Credit, unless the Majority Priority Class Creditors consent to such a sale.

Section 6.05. Appointment of Receiver. In case an Event of Default occurs, and if the Outstanding Credit shall have been declared due and payable and in case any judicial proceedings are commenced to enforce any right of the Secured Party or the Creditors under this Agreement or otherwise, then as a matter of right, the Secured Party shall be entitled to the appointment of a receiver of the Trust Estate and of the earnings, income or revenue, rents, issues and profits thereof with such powers as the court making such appointments may confer.

Section 6.06. Restoration of Position. In case the Secured Party shall have proceeded to enforce any rights under this Agreement by sale or otherwise, and such proceedings shall have been discontinued, or shall have been determined adversely to the Secured Party, then and in every such case to the extent not inconsistent with such adverse decree, the Issuer, the Secured Party and the Creditors shall be restored to their former respective positions and the rights hereunder in respect to the Trust Estate, and all rights, remedies and powers of the Secured Party and the Creditors shall continue as though no such proceeding had been taken.

49

Section 6.07. Application of Sale Proceeds. The proceeds of any sale of the Trust Estate, together with any funds at the time held by the Secured Party and not otherwise required to be used for a specific purpose pursuant to this Agreement, shall be applied by the Secured Party in accordance with the priority of payments as set forth in Section 5.03(b) hereof, and then to the Issuer or whomsoever shall be lawfully entitled thereto.

Section 6.08. Acceleration of Maturity; Rescission and Annulment. If an Event of Default should occur and be continuing, then and in every such case the Secured Party or the Majority Priority Class Creditors may declare the Outstanding Credit to be immediately due and payable, by a notice in writing to the Issuer (and to the Secured Party if given by the Creditors), and upon any such declaration the unpaid principal amount of such Outstanding Credit, together with accrued and unpaid interest thereon (with respect to the Senior Credit) to the date of acceleration, shall become immediately due and payable, subject, however, to Section 6.04 hereof.

At any time after such declaration of acceleration of maturity has been made and before a judgment or decree for payment of the money due has been obtained by the Secured Party as hereinafter provided in this Article, the Majority Priority Class Creditors, by written notice to the Issuer and the Secured Party, may rescind and annul such declaration and its consequences if either of the following occur:

(a) the Issuer has paid or deposited with the Secured Party a sum sufficient to pay:

(i) all payments of principal of and interest, as applicable, on the Credit and all other amounts that would then be due hereunder if the Event of Default giving rise to such acceleration had not occurred; and

(ii) all sums paid or advanced by the Secured Party hereunder and the reasonable compensation, expenses, disbursements and advances of the Secured Party, the Owner Trustee, the Administrator and the Servicer and their agents and counsel; or

(b) all Events of Default, other than the nonpayment of the principal of the Credit that has become due solely by such acceleration, have been cured or waived as provided in Section 6.14 hereof.

No such rescission shall affect any subsequent default or impair any right consequent thereto.

Section 6.09. Remedies Not Exclusive. The remedies herein conferred upon or reserved to the Secured Party or the Majority Priority Class Creditors are not intended to be exclusive of any other remedy, but each remedy herein provided shall be cumulative and shall be in addition to every other remedy given hereunder or now or hereafter existing, and every power and remedy hereby given to the Secured Party or the Majority Priority Class Creditors, or any supplement hereto, may be exercised from time to time as often as may be deemed expedient. No delay or omission of the Secured Party or the Majority Priority Class Creditors to exercise any power or right arising from any default hereunder shall impair any such right or power or shall be construed to be a waiver of any such default or to be acquiescence therein.

50

Section 6.10. Collection of Indebtedness and Suits for Enforcement by Secured Party. The Issuer covenants that if:

(a) default is made in the payment of any installment of interest, if any, on any Credit when such interest becomes due and payable and such default continues for a period of five Business Days; or

(b) default is made in the payment of the principal of any Credit at its Maturity,

then the Issuer shall pay to the Secured Party, for the benefit of the Creditors, but solely from the Trust Estate, the whole amount then due and payable on such Credit for principal (and premium, if any) and interest, if applicable, and, in addition thereto, such further amount as shall be sufficient to cover the costs and expenses of collection, including the reasonable compensation, fees, expenses, disbursements and advances of the Secured Party and its agents and counsel. Such amounts shall be applied as provided in Section 5.03(b).

If the Issuer fails to pay such amounts forthwith, the Secured Party, in its own name and as trustee of an express trust, may upon receiving indemnification satisfactory to the Secured Party institute a judicial proceeding for the collection of the sums so due and unpaid, may prosecute such proceeding to judgment or final decree, and may enforce the same against the Issuer or any other obligor upon such Credit and collect the moneys adjudged or decreed to be payable in the manner provided by law out of the property of the Issuer or any other obligor upon such Credit, wherever situated.

If an Event of Default occurs and is continuing, the Secured Party may, after being indemnified to its satisfaction and in its discretion, proceed to protect and enforce its rights and the rights of the Creditors by such appropriate judicial proceedings as the Secured Party shall deem most effectual to protect and enforce any such rights, whether for the specific enforcement of any covenant or agreement in this Agreement or in aid of the exercise of any power granted herein, or to enforce any other proper remedy.

Section 6.11. Direction of Secured Party. Upon the happening of any Event of Default, the Majority Priority Class Creditors (or, in the event there is no Senior Credit Outstanding, the Administrator, (i) if a default has occurred and is continuing under the Guarantee Agreement and (ii) in the case of clause (c) below) shall have the right by an instrument or instruments in writing delivered to the Secured Party to direct and control the Secured Party as to (a) the method of taking any and all proceedings for any sale of any or all of the Trust Estate hereunder, (b) the appointment of a receiver, if permitted by law, or (c) the direction to be given to the Secured Party in respect of the pursuit of remedies under the Guarantee Agreement, and may at any time cause any proceedings authorized by the terms hereof to be so taken or to be discontinued or delayed; provided, however, that such Majority Priority Class Creditors (or, in the event there is no Senior Credit Outstanding, the Administrator, (i) if a default has occurred and is continuing under the Guarantee Agreement and

51

(ii) in the case of clause (c) above) shall not be entitled to cause the Secured Party to take any proceedings which in the Secured Party’s opinion would be unjustly prejudicial to non-assenting Priority Class Creditors or, with respect to the pursuit of remedies under the Guarantee Agreement, would be unjustly prejudicial to the other payees of Guaranteed Payments with respect to Guaranteed Payments that would otherwise be paid pursuant to Section 5.03(b) prior to payments of principal on the Senior Credit, but the Secured Party shall be entitled to assume that the action requested by the Majority Priority Class Creditors will not be prejudicial to any non-assenting Priority Class Creditors unless the Priority Class Creditors with respect to more than 50% of the collective aggregate Outstanding Amount of the non-assenting Priority Class Creditors, in writing, show the Secured Party how they will be prejudiced. The provisions of this Section shall be expressly subject to the provisions of Sections 7.01(c), 7.05 and 7.07 hereof.

Section 6.12. Right to Enforce in Secured Party. No Creditor shall have any right as such Creditor to institute any suit, action or proceedings for the enforcement of the provisions of this Agreement or the Guarantee Agreement or for the execution of any trust hereunder or for the appointment of a receiver or for any other remedy hereunder, all rights of action hereunder being vested exclusively in the Secured Party, unless and until such Creditor shall have previously given to the Secured Party written notice of a default hereunder, and of the continuance thereof, and also unless the Majority Priority Class Creditors shall have made written request upon the Secured Party pursuant to Section 6.11 hereof and the Secured Party shall have been afforded reasonable opportunity to institute such action, suit or proceeding in its own name, and unless the Secured Party shall have been offered indemnity and security satisfactory to it against the costs, expenses and liabilities to be incurred therein or thereby, which offer of indemnity shall be an express condition precedent hereunder to any obligation of the Secured Party to take any such action hereunder, and the Secured Party for 30 days after receipt of such notification, request and offer of indemnity, shall have failed to institute any such action, suit or proceeding. It is understood and intended that one or more Creditors shall not have the right in any manner whatever by its or their action to affect, disturb or prejudice the lien of this Agreement or to enforce any right hereunder or in the Guarantee Agreement except in the manner herein provided and for the benefit of all Creditors in accordance with their respective priorities.

Section 6.13. Physical Possession of Notes and Loan Notes Not Required. In any suit or action by the Secured Party arising under this Agreement or on all or any of the Notes issued hereunder or with respect to the Loan, or any supplement hereto, the Secured Party shall not be required to produce such Notes or the Loan Notes related to the Loan, but shall be entitled in all things to maintain such suit or action without their production.

Section 6.14. Waivers of Events of Default. The Secured Party may waive any Event of Default hereunder and its consequences and rescind any declaration of acceleration only upon the written request of the Majority Priority Class Creditors; provided, however, that there shall not be waived (a) any Event of Default in the payment of the principal of or premium on any Outstanding Credit at the Maturity thereof, or any default in the payment when due of the interest on any such Credit (with respect to the Senior Credit), unless prior to such waiver or rescission, all arrears of interest or all arrears of payments of principal and all expenses of the Secured Party, in connection with such default shall have been paid or provided for; or (b) any default in the payment of amounts set forth in Sections 7.05 and 7.07 hereof. In case of any such waiver or rescission, or in case any proceedings taken by the Secured Party on account of any

52

such default shall have been discontinued or abandoned or determined adversely to the Secured Party, then and in every such case the Issuer, the Secured Party and the Creditors shall be restored to their former positions and rights hereunder respectively, but no such waiver or rescission shall extend to or affect any subsequent or other default, or impair any rights or remedies consequent thereon.

Section 6.15. Guarantee Agreement. Notwithstanding anything to the contrary contained in this Agreement or any other Basic Document, the Secured Party agrees not to waive any default under the Guarantee Agreement without first obtaining the written consent of each of the Senior Creditors and the other payees of Guaranteed Payments to the extent affected thereby. Upon the occurrence of any Event of Default resulting from a default by the Guarantor under the Guarantee Agreement, the Majority Priority Class Creditors may direct the Secured Party as to the action to take or the remedies to be pursued against the Guarantor, provided that in no event may the Guarantor have any right to direct such action, as Voting Party or Majority Priority Class Creditor.

ARTICLE VII

THE SECURED PARTY

Section 7.01. Acceptance of Trust. The Secured Party hereby accepts the trusts imposed upon it by this Agreement, and agrees to perform said trusts, but only upon and subject to the following terms and conditions:

(a) Except during the continuance of an Event of Default:

(i) the Secured Party undertakes to perform such duties and only such duties as are specifically set forth in this Agreement, and no implied covenants or obligations shall be read into this Agreement against the Secured Party; and

(ii) in the absence of negligence, bad faith or willful misconduct on its part, the Secured Party may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon certificates or opinions furnished to the Secured Party and conforming to the requirements of this Agreement; but in the case of any such certificates or opinions which by any provisions hereof are specifically required to be furnished to the Secured Party, the Secured Party shall be under a duty to examine the same to determine whether or not they conform as to form with the requirements of this Agreement.

(b) In case an Event of Default has occurred and is continuing, the Secured Party, in exercising the rights and powers vested in it by this Agreement, shall use the same degree of care and skill in its exercise as a prudent person would exercise or use under the circumstances in the conduct of his or her own affairs.

(c) Before taking any action hereunder requested by the Creditors, the Secured Party may require that it be furnished an indemnity bond or other indemnity and security satisfactory to it by the Creditors making such request for the reimbursement of all expenses to which it may be put and to protect it against all liability.

53

(d) The Secured Party shall not be liable for any error of judgment made in good faith by a Creditor, unless it shall be proved that the Secured Party was negligent in ascertaining the pertinent facts.

Section 7.02. Recitals of Others. The recitals, statements and representations set forth herein shall be taken as the statements of the Issuer, and the Secured Party assumes no responsibility for the correctness of the same. The Secured Party makes no representations as to the title of the Issuer or the Lender Trustee in the Trust Estate or as to the security afforded thereby and hereby, or as to the validity or sufficiency of this Agreement or of the Credit issued hereunder, and the Secured Party shall incur no responsibility in respect of such matters.

Section 7.03. As to Filing of Agreement. The Secured Party shall be under no duty (a) to file or record, or cause to be filed or recorded, this Agreement or any instrument supplemental hereto, (b) to procure any further order or additional instruments of further assurance, (c) to see to the delivery to it of any personal property intended to be pledged hereunder or thereunder, (d) to do any act which may be suitable to be done for the better maintenance of the lien or security hereof, or (e) to give notice of the existence of such lien, or for extending or supplementing the same or to see that any rights to the Trust Estate intended now or hereafter to be transferred in trust hereunder are subject to the lien hereof. The Secured Party shall not be liable for failure of the Issuer to pay any tax or taxes in respect of such property, or any part thereof, or the income therefrom or otherwise, nor shall the Secured Party be under any duty in respect of any tax which may be assessed against it or the Creditors in respect of such property or pledged to the Trust Estate. Pursuant to Section 4.03(a) hereof, the Issuer agrees to prepare and file in a timely manner, and request that the Secured Party execute (if such execution is necessary for any such filing) with any necessary execution by the Issuer, the continuation statements referred to herein; provided, that the Secured Party shall have no responsibility for the sufficiency, adequacy or priority of any filing and, in the absence of written notice to the contrary by the Issuer or other Authorized Representative, may rely and shall be protected in relying on all information and exhibits in such initial filings for the purposes of any continuation statements.

Section 7.04. Secured Party May Act Through Agents. The Secured Party may execute any of the trusts or powers hereof and perform any duty hereunder, either itself or by or through its attorneys, agents, accountants or other experts, and it shall not be answerable or accountable for any default, neglect or misconduct of any such attorneys, agents or employees, if reasonable care has been exercised in the appointment. All reasonable costs incurred by the Secured Party and all reasonable compensation to all such persons as may reasonably be employed in connection with the trusts hereof shall be paid by the Issuer.

Section 7.05. Indemnification of Secured Party. The Secured Party shall have no liability under this Agreement or other related agreements to which it is a party except for its own negligence or willful misconduct. In no event shall the Secured Party be responsible or liable for special, indirect, or consequential loss or damage of any kind whatsoever (including, but not limited to, loss of profit) irrespective of whether the Secured Party has been advised of the likelihood of such loss or damage and regardless of the form of action. In no event shall the Secured Party be responsible or liable for any failure or delay in the performance of its obligations hereunder arising out of or caused by, directly or indirectly, forces beyond its control,

54

including, without limitation, accidents, acts of war or terrorism, civil or military disturbances, nuclear or natural catastrophes or acts of God, and interruptions, loss or malfunctions of utilities, communications or computer (software and hardware) services; it being understood that the Secured Party shall use reasonable efforts which are consistent with accepted practices in the banking industry to resume performance as soon as practicable under the circumstances. The Secured Party shall be under no obligation or duty to perform any act at the request of the Creditors or to institute or defend any suit in respect thereof unless properly indemnified and provided with security to its satisfaction as provided in Section 7.01(c) hereof. The Secured Party shall not be required to take notice, or be deemed to have knowledge, of any default or Event of Default of the Issuer hereunder and may conclusively assume that there has been no such default or Event of Default (other than an Event of Default described in Section 6.01(a), (b), or (f)(ii) hereof) unless and until a Responsible Officer of the Secured Party shall have been specifically notified in writing at the address in Section 9.01 hereof of such default or Event of Default by (a) any Creditor or (b) an Authorized Representative of the Issuer. However, the Secured Party may begin suit, or appear in and defend suit, execute any of the trusts hereby created, enforce any of its rights or powers hereunder, or do anything else in its judgment proper to be done by it as trustee, without assurance of reimbursement or indemnity, and in such case the Secured Party shall be reimbursed or indemnified by the Creditors requesting such action, if any, or the Issuer in all other cases, for all fees, costs and expenses, liabilities, outlays and counsel fees and other reasonable disbursements properly incurred in connection therewith, unless such costs and expenses, liabilities, outlays and attorneys’ fees and other reasonable disbursements properly incurred in connection therewith are adjudicated to have resulted from the negligence or willful misconduct of the Secured Party. In furtherance and not in limitation of this Section, the Secured Party shall not be liable for, and shall be held harmless by the Issuer from, following any Issuer Orders, instructions or other directions upon which the Secured Party is authorized to rely pursuant to this Agreement or any other Basic Document to which it is a party. If the Issuer or the Creditors, as appropriate, shall fail to make such reimbursement or indemnification, the Secured Party may reimburse itself from any money in its possession under the provisions of this Agreement, subject only to the prior lien of the Credit for the payment of the principal thereof, premium, if any, and interest thereon from the Collection Account as provided in Section 5.03(b) hereof. None of the provisions contained in this Agreement or any other agreement to which it is a party shall require the Secured Party to act or to expend or risk its own funds or otherwise incur individual financial liability in the performance of any of its duties or in the exercise of any of its rights or powers on behalf of the Creditors if it shall have reasonable grounds for believing that prompt repayment of such funds or adequate indemnity against such risk or liability is not reasonably assured to it.

The Issuer agrees to indemnify the Secured Party and its officers, directors, agents and employees for, and to hold them harmless against, any loss, liability, damage, claim or expenses incurred without bad faith, negligence or willful misconduct on their part, arising out of or in connection with the acceptance or administration of the trust or trusts hereunder, including the costs and expenses of defending themselves against any claim or liability in connection with the exercise or performance of any of their powers or duties hereunder arising from the Trust Estate. The Issuer agrees to indemnify and hold harmless the Secured Party against any and all claims, demands, suits, actions or other proceedings and all liabilities, costs and expenses whatsoever caused by any untrue statement or misleading statement or alleged untrue statement or alleged misleading statement of a material fact contained in any offering document distributed in

55

connection with the issuance of the Credit (other than information in any such offering document provided by the Secured Party) or caused by any omission or alleged omission from such offering document of any material fact required to be stated therein or necessary in order to make the statements made therein in the light of the circumstances under which they were made, not misleading.

Section 7.06. Secured Party’s Right to Reliance. The Secured Party shall be protected in acting upon any notice, resolution, request, consent, order, certificate, report, appraisal, opinion, report or document of the Issuer, the Administrator or a Servicer or other paper or document believed by it to be genuine and to have been signed or presented by the proper party or parties. The Secured Party may consult with experts and with counsel (who may but need not be counsel for the Issuer, the Secured Party or any Creditor), and the opinion of such counsel shall be full and complete authorization and protection in respect of any action taken or suffered, and in respect of any determination made by it hereunder in good faith and in accordance with the opinion of such counsel.

Whenever in the administration hereof the Secured Party shall reasonably deem it desirable that a matter be proved or established prior to taking, suffering or omitting any action hereunder, the Secured Party (unless other evidence be herein specifically prescribed) may, in the absence of negligence, bad faith or willful misconduct on its part, rely upon a certificate signed by an Authorized Representative or an authorized officer of the Administrator.

The Secured Party shall not be liable for any action taken, suffered or omitted by it in good faith and believed by it to be authorized or within the discretion or rights or powers conferred upon it hereby; provided, however, that the Secured Party shall be liable for its negligence or willful misconduct in taking such action.

The Secured Party is authorized to enter into agreements with other Persons, in its capacity as Indenture Trustee and Collateral Agent, in order to carry out or implement the terms and provisions of this Agreement. The Secured Party shall not be liable with respect to any action taken, suffered or omitted to be taken in good faith in accordance with this Agreement or any other Basic Document or at the direction of the Voting Party or the Majority Priority Class Creditors relating to the time, method and place of conducting any proceeding for any remedy available to the Secured Party, or exercising any trust or power conferred upon the Secured Party, under this Agreement or any other Basic Document.

Section 7.07. Compensation of Secured Party. Except as otherwise expressly provided herein, the Secured Party Fee and all advances, counsel fees (including without limitation allocated fees of in-house counsel) and other expenses reasonably made or incurred by the Secured Party in and about the execution and administration of the trust hereby created shall be paid by the Issuer. The compensation of the Secured Party shall not be limited to or by any provision of law in regard to the compensation of trustees of an express trust. If not paid by the Issuer, the Secured Party shall have a lien against all money held pursuant to this Agreement, in the priority provided by Section 5.03(b) hereof, against the money and investments in the Collection Account for the payment of the principal thereof, premium, if any, and interest thereon, if any, for such reasonable compensation, expenses, advances and counsel fees incurred in and about the execution of the trusts hereby created and the exercise and performance of the

56

powers and duties of the Secured Party hereunder and the cost and expense incurred in defending against any liability in the premises of any character whatsoever (unless such liability is adjudicated to have resulted from the negligence or willful misconduct of the Secured Party).

Section 7.08. Resignation of Secured Party. The Secured Party and any successor to the Secured Party may resign and be discharged from the trust created by this Agreement by giving to the Issuer notice in writing which notice shall specify the date on which such resignation is to take effect; provided, however, that such resignation shall only take effect on the day specified in such notice if a successor Secured Party shall have been appointed pursuant to Section 7.10 hereof (and is qualified to be the Secured Party under the requirements of Section 7.10 hereof). If no successor Secured Party has been appointed by the date specified or within a period of 90 days from the receipt of the notice by the Issuer, whichever period is the longer, the Secured Party may (a) appoint a temporary successor Secured Party having the qualifications provided in Section 7.10 hereof or (b) request a court of competent jurisdiction to (i) require the Issuer to appoint a successor, as provided in Section 7.10 hereof, within three days of the receipt of citation or notice by the court, or (ii) appoint an Secured Party having the qualifications provided in Section 7.10 hereof. In no event may the resignation of the Secured Party be effective until a qualified successor Secured Party shall have been selected and appointed. In the event a temporary successor Secured Party is appointed pursuant to clause (a) above, the Issuer may remove such temporary successor Secured Party and appoint a successor thereto pursuant to Section 7.10 hereof.

Section 7.09. Removal of Secured Party. The Secured Party or any successor Secured Party may be removed (a) by the Issuer or the Majority Priority Class Creditors for cause or upon the sale or other disposition of the Secured Party or its corporate trust functions or (b) by the Majority Priority Class Creditors without cause so long as no Event of Default exists or has existed within the last 90 days, upon payment to the Secured Party so removed of all money then due to it hereunder and appointment of a successor thereto by the Issuer and acceptance thereof by said successor. One copy of any such order of removal shall be filed with the Owner Trustee and the other with the Secured Party so removed.

In the event the Secured Party (or successor Secured Party) is removed, by any person or for any reason permitted hereunder, such removal shall not become effective until (a) the Majority Priority Class Creditors by instrument or concurrent instruments in writing (signed and acknowledged by such Majority Priority Class Creditors or their attorneys-in-fact) filed with the Secured Party removed have appointed a successor Secured Party and (b) the successor Secured Party has accepted appointment as such.

Section 7.10. Successor Secured Party. In case at any time the Secured Party shall resign or be dissolved, or otherwise shall be disqualified to act or be incapable of acting, or in case control of the Secured Party or of any successor Secured Party or of its officers shall be taken over by any public officer or officers, a successor Secured Party may be appointed by the Majority Priority Class Creditors by an instrument or concurrent instruments in writing (signed and acknowledged by such Majority Priority Class Creditors or their attorneys-in-fact). In the case of any such appointment by the Majority Priority Class Creditors of a successor to the Secured Party, the successor Secured Party shall forthwith cause notice thereof to be mailed to the Creditors at the address of each Creditor appearing on the registration books maintained by the Secured Party, as registrar.

57

Every successor Secured Party appointed by the Majority Priority Class Creditors or by a court of competent jurisdiction shall be a state, national or federally chartered bank or trust company in good standing, organized and doing business under the laws of the United States or any state, which has a reported capital and surplus of not less than $50,000,000, be authorized under the law to exercise corporate trust powers and be subject to supervision or examination by a federal or state authority.

Section 7.11. Manner of Vesting Title in Secured Party. Any successor Secured Party appointed hereunder shall execute, acknowledge and deliver to its predecessor Secured Party, and also to the Issuer, an instrument accepting such appointment hereunder, and thereupon such successor Secured Party, without any further act, deed or conveyance shall become fully vested with all the estate, properties, rights, powers, trusts, duties and obligations of its predecessors in trust and agency hereunder (except that the predecessor Secured Party shall continue to have the benefits to indemnification hereunder together with the successor Secured Party), with like effect as if originally named as trustee herein; but the Secured Party ceasing to act shall nevertheless, on the written request of an Authorized Representative, or an authorized officer of the successor Secured Party, execute, acknowledge and deliver such instruments of conveyance and further assurance and do such other things as may reasonably be required for more fully and certainly vesting and confirming in such successor Secured Party all the right, title and interest of the Secured Party which it succeeds, in and to the Trust Estate and such rights, powers, trusts, duties and obligations, and the Secured Party ceasing to act also, upon like request, pay over, assign and deliver to the successor Secured Party any money or other property or rights subject to the lien of this Agreement, including any pledged securities which may then be in its possession. Should any deed or instrument in writing from the Issuer be required by the successor Secured Party for more fully and certainly vesting in and confirming to such new Secured Party such estate, properties, rights, powers and duties, any and all such deeds and instruments in writing shall on request be executed, acknowledged and delivered by the Issuer.

In case any of the Notes or the Loan Notes issued hereunder shall have been authenticated but not delivered, any successor Secured Party may adopt the certificate of authentication of the Secured Party or of any successor to the Secured Party; and in case any of the Notes or the Loan Notes shall not have been authenticated, any successor to the Secured Party may authenticate such Notes or the Loan Notes in its own name; and in all such cases such certificate shall have the full force which it has anywhere in the Notes, the Loan Notes or in this Agreement.

Section 7.12. Right of Inspection. Each Creditor shall be permitted at reasonable times during regular business hours and in accordance with reasonable regulations prescribed by the Secured Party to examine at the Principal Office of the Secured Party a copy of any report or instrument theretofore filed with the Secured Party relating to the condition of the Trust Estate; provided, however, that the Secured Party shall not provide, or cause to be provided, to any Creditor information which is specific to the Guarantor or the Financed Loans that is not otherwise provided in the Monthly Report.

58

Section 7.13. Limitation with Respect to Examination of Reports. Except as provided in this Agreement, the Secured Party shall be under no duty to examine any report or statement or other document required or permitted to be filed with it by the Issuer.

Section 7.14. Additional Covenants of Secured Party. The Secured Party, by the execution hereof, covenants, represents and agrees that it will not exercise any of the rights, duties or privileges under this Agreement in such manner as would cause the Financed Loans held or acquired under the Loan Purchase Agreement to be transferred, assigned or pledged as security to any person or entity other than as permitted by this Agreement.

Section 7.15. Merger of the Secured Party. Any corporation into which the Secured Party may be merged or with which it may be consolidated, or any corporation resulting from any merger or consolidation to which the Secured Party shall be a party, or any corporation succeeding to all or substantially all of the corporate trust business of the Secured Party, shall be the successor of the Secured Party hereunder, provided such corporation shall be otherwise qualified and eligible under this Agreement, without the execution or filing of any paper or any further act on the part of any other parties hereto.

Section 7.16. Receipt of Funds from the Servicer. The Secured Party shall not be accountable or responsible in any manner whatsoever for any action of the Issuer, the Administrator, the depository bank of any funds of the Issuer, or the Servicer while the Servicer is acting as bailee or agent of the Secured Party with respect to the Financed Loans for actions taken in compliance with any reasonable instruction or direction given to the Secured Party, or for the application of funds or moneys by the Servicer until such time as funds are received by the Secured Party.

Section 7.17. Survival of Secured Party’s Rights to Receive Compensation, Reimbursement and Indemnification. The Secured Party’s rights to receive compensation, reimbursement and indemnification of money due and owing hereunder at the time of the Secured Party’s resignation or removal shall survive the Secured Party’s resignation or removal and the termination of the Basic Documents.

Section 7.18. Secured Party May File Proofs of Claim. In case of the pendency of any receivership, insolvency, liquidation, bankruptcy, reorganization, arrangement, adjustment, composition or other judicial proceeding relative to the Issuer, the Guarantor or any other obligor upon the Credit or the property of the Issuer or of such other obligor or their creditors, the Secured Party (irrespective of whether the principal of the Credit shall then be due and payable as therein expressed or by declaration or otherwise and irrespective of whether the Secured Party shall have made any demand on the Issuer for the payment of overdue principal, premium, if any, or interest) shall be entitled and empowered, by intervention in such proceeding or otherwise:

(a) to file and prove a claim for the whole amount, or such lesser amount as may be provided for in the Credit, of principal (and premium, if any) and interest, if any, owing and unpaid in respect of the Credit and to file such other papers or documents as may be necessary or advisable in order to have the claims of the Secured Party (including any claim for the reasonable fees, compensation, expenses, disbursements and advances of the Secured Party and its agents and counsel) and of the Creditors allowed in such judicial proceeding; and

59

(b) to collect and receive any money or other property payable or deliverable on any such claims and to distribute the same; and any custodian, receiver, assignee, trustee, liquidator, sequestrator (or other similar official) in any such judicial proceeding is hereby authorized by each Creditor to make such payments to the Secured Party, and if the Secured Party shall consent to the making of such payments directly to the Creditors, to pay to the Secured Party any amount due to it for the reasonable fees, compensation, expenses, disbursements and advances of the Secured Party and any predecessor Secured Party, their agents and counsel, and any other amounts due the Secured Party or any predecessor Secured Party.

Nothing herein contained shall be deemed to authorize the Secured Party to authorize or consent to or accept or adopt on behalf of any Creditor, any plan of reorganization, arrangement, adjustment or composition affecting the Credit or the rights of any Creditor, or to authorize the Secured Party to vote in respect of the claim of any Creditor in any such proceeding.

In any proceedings brought by the Secured Party (and also any proceedings involving the interpretation of any provision of this Agreement to which the Secured Party shall be a party), the Secured Party shall be held to represent all the Creditors, and it shall not be necessary to make any Creditors parties to any such proceedings.

Section 7.19. No Petition. The Secured Party will not at any time institute against the Issuer any bankruptcy proceeding under any United States federal or State bankruptcy or similar law in connection with any obligations of the Issuer under this Agreement.

ARTICLE VIII

AMENDMENTS AND SUPPLEMENTS

Section 8.01. Amendments and Supplements Not Requiring Consent of the Creditors. The Issuer and the Secured Party may, without the consent of the Creditors or the Guarantor, enter into any Amendment or Supplement to this Agreement for any one or more of the following purposes:

(a) to cure any ambiguity or formal defect or omission in this Agreement;

(b) to grant to or confer upon the Secured Party for the benefit of the Creditors any additional benefits, rights, remedies, powers or authorities not inconsistent with any other provisions hereof that may lawfully be granted to or conferred upon the Creditors or the Secured Party;

(c) to describe or identify more precisely any part of the Trust Estate or to subject additional revenues, properties or collateral to the lien and pledge of this Agreement;

60

(d) to evidence the appointment of a separate or co-Secured Party or a co-registrar or transfer agent or the succession of a new Secured Party hereunder;

(e) to make any changes necessary to comply with or obtain more favorable treatment under any current or future law, rule or regulation, including but not limited to the Code and the regulations promulgated thereunder; and

(f) to create any additional Accounts or Subaccounts under this Agreement deemed by the Secured Party to be necessary or desirable;

provided, however, that nothing in this Section shall permit, or be construed as permitting, any modification of the trusts, powers, rights, duties, remedies, immunities and privileges of the Secured Party without the prior written approval of the Secured Party, which approval shall be evidenced by execution of an Amendment or Supplement; and provided, further, (i) an Opinion of Counsel is delivered to the Secured Party to the effect that such amendment will not have a material adverse effect on the Creditors and the Guarantor and (ii) that a copy of each Amendment or Supplement to this Agreement entered into pursuant to this Section shall be delivered by the Secured Party to each Creditor and the Guarantor not more than five Business Days following entry into the same.

Section 8.02. Amendments and Supplements Requiring Consent of the Guarantor and Creditors. Exclusive of Amendments and Supplements covered by Section 8.01 hereof and subject to the terms and provisions contained in this Section, and not otherwise, the Guarantor and the Majority Priority Class Creditors shall have the right, from time to time, to consent to and approve the execution by the Issuer and the Secured Party of such other amendment or supplement hereto for the purpose of modifying, altering, amending, adding to or rescinding, in any particular, any of the terms or provisions contained in this Agreement; provided, however, that nothing in this Section shall permit, or be construed as permitting without the consent of the Guarantor and the Creditors of all then Outstanding Credit which would be affected thereby, (i) an extension of the Maturity of the principal of or the due date for interest on any Credit, or (ii) a reduction in the principal amount of any Credit or the rate of interest thereon (with respect to the Senior Credit), or (iii) a privilege or priority of any Senior Credit over any other Senior Credit, or (iv) a reduction in the aggregate principal amount of the Credit required for consent to such Amendment or Supplement, or (v) the creation of any lien other than a lien ratably securing all of the Senior Credit at any time Outstanding hereunder except as otherwise provided herein and a subordinate lien securing the Subordinate Note Outstanding hereunder. For purposes of this Agreement, Credit is deemed “affected” by an amendment if such amendment, directly or indirectly, adversely affects or diminishes the rights of the Registered Owners or Lender thereof to be assured of the payment of principal of, premium, if any, and interest (with respect to the Senior Credit) on such Credit. In furtherance of the foregoing, in no event may any provision of this Agreement that requires the consent of, or provides for direction from all Creditors, be amended or supplemented without obtaining the consent of all such Creditors.

If at any time the Issuer shall request the Secured Party to enter into any such Amendment or Supplement for any of the purposes of this Section, the Secured Party shall, upon being satisfactorily indemnified with respect to expenses, cause notice of the proposed execution of such Amendment or Supplement to be delivered to each Creditor at the address shown on the

61

registration books pursuant to Section 9.01 hereof and the Guarantor. Such notice (which shall be prepared by the Issuer) shall briefly set forth the nature of the proposed Amendment or Supplement and shall include a copy of the same. If, within 60 days, or such longer period as shall be prescribed by the Issuer, following the delivery of such notice, the Guarantor and such percentage of Creditors as may be required shall have consented in writing to and approved the execution thereof as herein provided, no Creditor shall have any right to object to any of the terms and provisions contained therein, or the operation thereof, or in any manner to question the propriety of the execution thereof, or to enjoin or restrain the Secured Party or the Issuer from executing the same or from taking any action pursuant to the provisions thereof. Upon the execution of any such Amendment or Supplement as in this Article VIII permitted and provided, this Agreement shall be and be deemed to be modified and amended in accordance therewith and the Secured Party shall deliver to each Creditor and the Guarantor not more than five Business Days following entry into the same a copy of such fully executed Amendment or Supplement at the address shown on the note registration books pursuant to Section 9.01 hereof.

Section 8.03. Rights of Secured Party. If, in the opinion of the Secured Party, any Amendment or Supplement provided for in this Article adversely affects the rights, duties or immunities of the Secured Party under this Agreement or otherwise, the Secured Party may, in its discretion, decline to execute such Amendment or Supplement. The Secured Party shall be entitled to receive, and shall be fully protected in relying upon, an opinion of counsel as conclusive evidence that any such Amendment or Supplement proposed to be executed by it hereunder conforms to the requirements of, and is authorized and permitted under, this Agreement.

Section 8.04. Rights of Administrator. No Amendment or Supplement shall amend (a) the rights or responsibilities of the Administrator hereunder or (b) any provision addressing the payment of the Administration Fees or the payment of other fees or expenses of the Administrator or the payment of the Servicing Fees or the payment of other fees or expenses of the Servicer, unless the Secured Party shall have received the written consent of the Administrator to such Amendment or Supplement.

ARTICLE IX

GENERAL PROVISIONS

Section 9.01. Notices. Any notice, request or other instrument required by this Agreement to be signed or executed by the Creditors may be executed by the execution of any number of concurrent instruments of similar tenor, and may be signed or executed by such Creditors in person or by agent appointed in writing. As a condition for acting thereunder, the Secured Party may demand proof that the person or agent executing such instrument on behalf of the Creditor is authorized to do so.

All notices, requests and other communications to any party hereunder or to the Guarantor shall be in writing (including bank wire, electronic communication, facsimile or similar writing) to a proper address specified herein or pursuant to an Amendment or Supplement. All notices to Creditors shall be sent to the address of each Creditor appearing on the registration books maintained by the Secured Party, as registrar. Until otherwise provided by

62

the respective Person, all notices, certificates and communications shall be made to the following addresses, and each address shall constitute each Person’s respective “Principal Office” for purposes of this Agreement:

If intended for the Secured Party:

Deutsche Bank Trust Company Americas

c/o Deutsche Bank National Trust Company

100 Plaza One

Jersey City, NJ 07311-3901

Attention: Susan Barstock

Telephone: (201) 593-8421

Facsimile: (212) 553-2458

If intended for the Issuer:

PEAKS Trust 2009-1

c/o Deutsche Bank Trust Company Delaware

1011 Centre Road, Suite 200

Wilmington, Delaware 19805

Attention: Elizabeth B. Ferry

Telephone: (302) 636-3392

Facsimile: (302) 636-3399

with a copy to

Deutsche Bank Trust Company Americas

c/o Deutsche Bank National Trust Company

100 Plaza One

Jersey City, NJ 07311-3901

Attention: Susan Barstock

Telephone: (201) 593-8421

Facsimile: (212) 553-2458

and a copy to the Administrator:

Access Group, Inc.

P.O. Box 7430

5500 Brandywine Parkway

Wilmington, Delaware 19803

Attention: Vice President-Portfolio Management

Telephone: (302) 477-4071

Facsimile: (302) 477-4032

63

If intended for the Guarantor:

ITT Educational Services, Inc.

13000 North Meridian Street

Carmel, IN 46032

e-mail: dfitzpatrick@ittesi.com

Attention: Chief Financial Officer

Telephone: (317) 706-9200

Facsimile: (317) 706-9254

If intended for the Lender Trustee:

Deutsche Bank National Trust Company

100 Plaza One

Jersey City, NJ 07311-3901

Attention: Susan Barstock

Telephone: (201) 593-8421

Facsimile: (212) 553-2458

Any Person may change the address to which subsequent notices to such Person are to be sent, or of its Principal Office, by notice to the others, delivered by hand or received by telex or facsimile or registered first-class mail, postage prepaid. Each such notice, request or other communication shall be effective when delivered by hand or received by facsimile or registered first-class mail, postage prepaid.

Section 9.02. Covenants Bind Issuer. The covenants, agreements, conditions, promises, and undertakings in this Agreement shall extend to and be binding upon the successors and assigns of the Issuer, and all of the covenants hereof shall bind such successors and assigns, and each of them, jointly and severally. All the covenants, conditions and provisions hereof shall be held to be for the sole and exclusive benefit of the parties hereto and their successors and assigns, the Persons identified in Section 9.12 hereof and of the Creditors.

No extension of time of payment of any of the Credit shall operate to release or discharge the Issuer, it being agreed that the liability of the Issuer, to the extent permitted by law, shall continue until all of the Credit is paid in full, notwithstanding any transfer of Financed Loans or extension of time for payment.

Section 9.03. Lien Created. This Agreement shall operate effectually as (a) a grant of lien on and security interest in, and (b) an assignment of, the Trust Estate.

Section 9.04. Severability of Lien. If the lien of this Agreement shall be or shall ever become ineffectual, invalid or unenforceable against any part of the Trust Estate, which is not subject to the lien, because of want of power or title in the Issuer, the inclusion of any such part shall not in any way affect or invalidate the pledge and lien hereof against such part of the Trust Estate as to which the Issuer in fact had the right to pledge.

64

Section 9.05. Consent of Creditors Binds Successors. Any request or consent of the Creditors given for any of the purposes of this Agreement shall bind all future assignees of the Credit of such Creditor or any Credit issued in exchange therefor or in substitution thereof in respect of anything done or suffered by the Issuer or the Secured Party in pursuance of such request or consent.

Section 9.06. Nonliability of Persons; No General Obligation. It is hereby expressly made a condition of this Agreement that any agreements, covenants or representations herein contained or contained in the Notes or the Loan Notes do not and shall never constitute or give rise to a personal or pecuniary liability or charge against the organizers, officers, employees, agents or trustees or the Administrator of the Issuer, or against the general credit of the Issuer, and in the event of a breach of any such agreement, covenant or representation, no personal or pecuniary liability or charge payable directly or indirectly from the general revenues of the Issuer shall arise therefrom. Nothing contained in this Section, however, shall relieve the Issuer from the observance and performance of the several covenants and agreements on its part herein contained.

Section 9.07. Laws Governing. It is the intent of the parties hereto that this Agreement shall in all respects be governed by the laws of the State of New York.

Section 9.08. Severability. If any covenant, agreement, waiver, or part thereof in this Agreement shall be forbidden by any pertinent law or under any pertinent law be effective to render this Agreement invalid or unenforceable or to impair the lien hereof, then each such covenant, agreement, waiver, or part thereof shall itself be and is hereby declared to be wholly ineffective, and this Agreement shall be construed as if the same were not included herein.

Section 9.09. Waiver of Jury Trial. The parties hereto irrevocably waive, to the fullest extent permitted by applicable law, any and all right to trial by jury in any legal proceeding arising out of or relating to this Agreement or the transactions contemplated hereby.

Section 9.10. Exhibits. The terms of the Schedules and Exhibits, if any, attached to this Agreement are incorporated herein in all particulars.

Section 9.11. Non-Business Days. Except as may otherwise be provided in this Agreement, if the date for making payment of any amount hereunder or on any Note, or if the date for taking any action hereunder, is not a Business Day, then such payment can be made or action can be taken on the next succeeding Business Day and interest, if any, shall accrue to such next succeeding Business Day, with the same force and effect as if such payment were made when due or action taken on such required date.

Section 9.12. Parties Interested Herein. Nothing in this Agreement expressed or implied is intended or shall be construed to confer upon, or to give to, any person or entity, other than the Secured Party, the Owner Trustee, the Lender Trustee, the Administrator, the Guarantor, the Persons entitled to payments from the Collection Account pursuant to Section 5.03(b)(i) and (ii) hereof and the Creditors, any right, remedy or claim under or by reason of this Agreement or any covenant, condition or stipulation hereof, and all covenants, stipulations, promises and agreements in this Agreement contained by and on behalf of the Issuer shall be for the sole and exclusive benefit of the Secured Party, the Administrator, such other Persons and the Creditors.

65

Section 9.13. Credit Are Limited Obligations. The Credit and the obligations of the Issuer contained in this Agreement are special, limited obligations of the Issuer, secured by and payable solely from the Trust Estate herein provided and amounts received under the Guarantee Agreement. The Issuer shall not be obligated to pay the Credit, the interest thereon, or any other obligation created by or arising from this Agreement from any other source.

Section 9.14. Financed Loans. The Issuer, together with the Lender Trustee, expects to acquire Eligible Loans and to grant a security interest in the Eligible Loans to the Secured Party, in accordance with this Agreement, which Eligible Loans, upon becoming subject to the lien of this Agreement, constitute Financed Loans, as defined herein. If for any reason a Financed Loan does not constitute an Eligible Loan, or ceases to constitute an Eligible Loan, such loan shall continue to be subject to the lien of this Agreement as a Financed Loan.

Section 9.15. Concerning the Owner Trustee. It is expressly understood and agreed by the parties to this Agreement and the Creditors that (a) this Agreement is executed and delivered by the Owner Trustee not in its individual or personal capacity but solely in its capacity as Owner Trustee under the Trust Agreement on behalf of the Issuer, in the exercise of the powers and authority conferred and vested in it as Owner Trustee under the Trust Agreement, subject to the protections, indemnities and limitations from liability afforded to the Owner Trustee thereunder; (b) the representations, warranties, covenants, undertakings, agreements and obligations by the Owner Trustee are made and intended not as personal representations, warranties, covenants, undertakings, agreements and obligations by Deutsche Bank Trust Company Delaware, but are made and intended for the purpose of only binding the Trust Estate, as defined in the Trust Agreement, and the Issuer; (c) nothing contained herein shall be construed as creating any liability on Deutsche Bank Trust Company Delaware, individually or personally, to perform any expressed or implied covenant, duty or obligation of any kind whatsoever contained herein; and (d) under no circumstances shall Deutsche Bank Trust Company Delaware, be personally liable for the payment of any fees, costs, indebtedness or expenses of any kind whatsoever or be personally liable for the breach or failure of any obligation, representation, agreement, warranty or covenant whatsoever made or undertaken by the Owner Trustee or the Issuer hereunder.

Section 9.16. Concerning the Administrator. It is expressly understood and agreed by the parties to this Agreement and the Creditors that (a) in the exercise of the powers and authority conferred and vested in it as Administrator under the Administration Agreement, and subject to the protections and limitations from liability afforded to the Administrator thereunder, Access Group is acting solely in its capacity as Administrator on behalf of the Issuer and not in its individual or personal capacity; (b) the representations, warranties, certifications, covenants, undertakings, agreements and obligations by Access Group herein and in the certificates delivered pursuant hereto are made and intended not as personal representations, warranties, covenants, undertakings, agreements and obligations by Access Group, but are made and intended for the purpose of only binding the Trust Estate and the Issuer; and (c) except as provided in the Administration Agreement, nothing contained herein shall be construed as creating any liability on Access Group, individually or personally, to perform any expressed or implied covenant, duty or obligation of any kind whatsoever contained herein.

66

Section 9.17. Indemnification Obligations of Creditors. In the event that any indemnity is due and owing from the Creditors to the Secured Party as a result of an instruction or direction given by all or less than all of the Creditors, the Creditors shall, in either such case, provide such indemnification ratably on the basis of the Outstanding Amount of the Credit held by each such Creditor at the time such indemnity is due and owing. Nothing in this Section shall constitute a waiver of the Secured Party’s right not to expend or risk its own funds pursuant to Section 7.05 hereof.

Section 9.18. Security Agreement. This Agreement constitutes a Security Agreement under the Uniform Commercial Code.

ARTICLE X

PAYMENT AND CANCELLATION OF CREDIT

AND SATISFACTION OF AGREEMENT

Section 10.01. Trust Irrevocable. The trust created by the terms and provisions of this Agreement is irrevocable until the indebtedness secured hereby (the Subordinated Note and the Senior Credit and interest thereon) are fully paid or provision made for their payment as provided in this Article.

Section 10.02. Satisfaction of Agreement. If on any date the Issuer shall pay, or cause to be paid, or there shall otherwise be paid to (a) the Creditors of the Senior Credit, the principal of and interest on the Senior Credit, and (b) after the Outstanding Amount of the Senior Credit has been reduced to zero, to the Registered Owner of the Subordinated Note, the principal of the Subordinated Note, at the times and in the manner stipulated in this Agreement, then the pledge of the Trust Estate, and all covenants, agreements and other obligations of the Issuer to the Creditors shall thereupon cease, terminate and become void and be discharged and satisfied. In such event, the Secured Party shall execute and deliver to the Issuer all such instruments as the Issuer may request to evidence such discharge and satisfaction, and the Secured Party shall pay over or deliver all money held by it under this Agreement to the party entitled to receive the same under this Agreement.

Section 10.03. Cancellation of Paid Notes and Loans. Any Notes which have been paid or purchased by the Issuer or any portion of the Loan that has been assigned or transferred to the Issuer, and any transferred, exchanged or mutilated Loan Notes or Notes replaced by new Loan Notes or Notes, shall (unless otherwise directed by the Issuer by Issuer Order) forthwith be cancelled and destroyed pursuant to Section 2.06 hereof.

Section 10.04. Third-Party Beneficiary; Reports.

The Guarantor shall be express third-party beneficiary of this Agreement entitled to the rights and benefits hereunder and may enforce the provisions hereof as if it were a party hereto. All reports required to be delivered under this Agreement by any party shall be delivered to the Guarantor.

67

Section 10.05. Actions by Guarantor as Voting Party.

Notwithstanding anything to the contrary contained herein, in no event may the Guarantor take any action as Voting Party hereunder, including, but not limited to, with respect to granting consent to any amendment of or waiver under this Agreement or the other Basic Documents, if such action would be materially adverse to any Creditor, unless each Creditor so affected shall have consented to such action.

Section 10.06. Tax Treatment.

Each Registered Owner of Notes understands that it is the Issuer’s intention that the Notes be treated as debt for federal income tax purposes, and by its acceptance of its Notes agrees to so treat all Notes as debt of the Issuer or the Certificateholder for all federal, state and local income and franchise tax purposes and to take no action inconsistent therewith. The Lender understands that the Issuer is treating the Loan as debt for federal, state, and local income and franchise tax purposes, and by its execution of the Loan Agreement (or an assignment and assumption agreement executed in connection therewith), agrees to treat the Loan as a debt instrument and to take no action inconsistent therewith.

68

IN WITNESS WHEREOF, the Issuer has caused this Agreement to be executed in its organizational name and behalf by the Owner Trustee, to evidence its acceptance of the trusts hereby created, has caused this Agreement to be executed in its organizational name and behalf, all in multiple counterparts, each of which shall be deemed an original, and the Issuer and the Secured Party have caused this Agreement to be dated as of the date herein above first shown.

PEAKS TRUST 2009-1, a Delaware statutory trust
By:	DEUTSCHE BANK TRUST COMPANY DELAWARE, not in its individual capacity or personal capacity but solely in its capacity as Owner Trustee
By	/s/ Susan Barstock
Name:	Susan Barstock
Title:	Attorney-in-fact
By	/s/ Ellen Jean-Baptiste
Name:	Ellen Jean-Baptiste
Title:	Attorney-in-fact

69

DEUTSCHE BANK TRUST COMPANY AMERICAS, as Indenture Trustee and as Collateral Agent
By	/s/ Susan Barstock
Name	Susan Barstock
Title	Vice President
By	/s/ Ellen Jean-Baptiste
Name	Ellen Jean-Baptiste
Title	Associate
DEUTSCHE BANK NATIONAL TRUST COMPANY, as Lender Trustee
By	/s/ Susan Barstock
Name	Susan Barstock
Title	Vice President
By	/s/ Ellen Jean-Baptiste
Name	Ellen Jean-Baptiste
Title	Associate

70

EXHIBIT A

ELIGIBLE LOANS ACQUISITION CERTIFICATE

This Eligible Loans Acquisition Certificate is submitted pursuant to the provisions of Section 5.02 of the Amended and Restated Indenture and Credit Agreement, dated as of December 31, 2010, (as amended, the “Agreement”), among PEAKS Trust 2009-1 (the “Issuer”), Deutsche Bank Trust Company Americas, as secured party (the “Secured Party”) and Deutsche Bank National Trust Company, as lender trustee (the “Lender Trustee”). All capitalized terms used in this Certificate and not otherwise defined herein shall have the same meanings given to such terms in the Agreement. In your capacity as Secured Party, you are hereby authorized and requested to disburse to (a) Liberty Bank, N.A. (the “Originating Lender”) the amount set forth in the last sentence of paragraph (4) below for the acquisition of Eligible Loans and (b) Deutsche Bank Securities, Inc., the amount set forth in the last sentence of paragraph (5) below for the payment of the Syndication Agent Fee. With respect to the Eligible Loans so to be acquired, the Issuer hereby certifies as follows:

1. The Eligible Loans to be acquired or increased are those specified in Schedule A attached hereto (the “Acquired Loans”).

2. The Issuer is not, on the date hereof, in default in any material respect under the Agreement or in the performance of any of its covenants and agreements made in the Loan Purchase Agreement, and, to the best knowledge of the Issuer, the Originating Lender is not in default under the Loan Purchase Agreement.

3. To its knowledge, all of the conditions specified in the Loan Purchase Agreement applicable to the Acquired Loans and the Agreement for the acquisition of the Acquired Loans and the disbursement hereby authorized and requested have been satisfied.

4. The Purchase Price payable for the Acquired Loans is $            . The amount of Originating Lender Premiums previously paid to the Originating Lender in respect of Financed Loans that became Refunded Financed Loans for which the Originating Lender has not returned such Originating Lender Premiums to the Issuer is $            . The net Purchase Price to be paid for the Acquired Loans is $            .

5. The Syndication Agent Fees payable in connection with the Acquired Loans is $            . The amount of Syndication Agent Fees previously paid to the Syndication Agent in respect of Financed Loans that became Refunded Financed Loans for which the Syndication Agent has not returned such Syndication Agent Fees to the Issuer is $            . The net amount of Syndication Agent Fees to be paid in connection with the Acquired Loans is $            .

6. The Senior Purchase Price with respect to the Acquired Loans is $            . The Subordinated Purchase Price with respect to the Acquired Loans is $            .

7. The undersigned is authorized to sign and submit this Certificate on behalf of the Issuer.

A-1

WITNESS my hand this      day of                     .

PEAKS TRUST 2009-1
By:	ACCESS GROUP, INC., as Administrator
By
Name
Title

A-2

SCHEDULE A

ACQUIRED LOANS

S-1

EXHIBIT B-1

FORM OF SENIOR NOTE

THIS SENIOR NOTE HAS NOT BEEN AND WILL NOT BE REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR REGISTERED OR QUALIFIED UNDER ANY STATE SECURITIES OR BLUE SKY LAW OF ANY STATE. THE HOLDER HEREOF, BY PURCHASING THIS NOTE, AGREES THAT THIS SENIOR NOTE MAY BE REOFFERED, RESOLD, PLEDGED OR OTHERWISE TRANSFERRED ONLY IN COMPLIANCE WITH THE SECURITIES ACT AND OTHER APPLICABLE LAWS AND ONLY PURSUANT TO AN EXEMPTION AVAILABLE UNDER THE SECURITIES ACT AND IN ACCORDANCE WITH ANY APPLICABLE STATE SECURITIES LAWS. BY ENTERING INTO THE SENIOR NOTES NOTE PURCHASE AGREEMENT, THE PURCHASER SHALL HAVE REPRESENTED THAT IT IS (I) AN INSTITUTIONAL “ACCREDITED INVESTOR” AS THAT TERM IS DEFINED UNDER RULE 501(a)(1), (2), (3) or (7) OF REGULATION D PROMULGATED UNDER THE SECURITIES ACT OR (II) A “QUALIFIED INSTITUTIONAL BUYER” AS THAT TERM IS DEFINED IN RULE 144A PROMULGATED UNDER THE SECURITIES ACT.

THE PRINCIPAL OF THIS SENIOR NOTE IS PAYABLE AS SET FORTH HEREIN. ACCORDINGLY, THE OUTSTANDING PRINCIPAL AMOUNT OF THIS SENIOR NOTE AT ANY TIME MAY BE LESS THAN THE AMOUNT SHOWN ON THE FACE HEREOF. THIS SENIOR NOTE IS NOT GUARANTEED OR INSURED BY ANY GOVERNMENTAL AGENCY.

PEAKS TRUST 2009-1

SENIOR NOTE

REGISTERED NO. R-	REGISTERED $[            ]
CUSIP [                    ]

PEAKS TRUST 2009-1, a statutory trust organized and existing under the laws of the State of Delaware (herein referred to as the “Issuer”), for value received, hereby promises to pay to [            ], or registered assigns (the “Registered Owner”), but solely from the revenues and receipts hereinafter specified and not otherwise, a principal sum of [            ] MILLION DOLLARS AND NO/100 ($[            ]) (the “Principal Amount”) on the Payment Date in January 2020 (the “Stated Maturity Date”), subject to the right of prior payment as described herein, and to pay interest on said Principal Amount, but solely from the revenues and receipts hereinafter specified and not otherwise, to the Registered Owner hereof at the close of business on the corresponding Record Date, from the date hereof until the payment of said Principal Amount has been made or duly provided for, payable on each Payment Date and at the Maturity Date, at a per annum rate equal to the LIBOR Rate plus 5.50%. Interest payable on this Senior Note shall be computed on the basis of a year of 360 days for the number of days actually elapsed and accrue daily from the date hereof.

B-1-1

The principal of and interest on this Senior Note are payable in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts. All payments made by the Issuer with respect to this Senior Note shall be applied first to interest due and payable on this Senior Note as provided above and then to the unpaid Principal Amount of this Senior Note.

This Senior Note is a senior note (collectively, the “Senior Notes”) issued by the Issuer pursuant to the Indenture and Credit Agreement, dated as of January 20, 2010 (the “Agreement”), by and among the Issuer (by Deutsche Bank Trust Company Delaware, in its capacity as owner trustee (the “Owner Trustee”)), Deutsche Bank Trust Company Americas, a banking corporation duly organized and operating under the laws of the State of New York, as indenture trustee (in such capacity, the “Indenture Trustee”) and as collateral agent (in such capacity, the “Collateral Agent”, and in its capacities as Indenture Trustee and as Collateral Agent, the “Secured Party”) and Deutsche Bank National Trust Company, as lender trustee (the “Lender Trustee”) (capitalized terms used but not defined herein being defined in the Agreement, which also contains rules as to usage that shall be applicable herein). This Senior Note is subject to all terms and provisions of the Agreement. A subordinated note (the “Subordinated Note,” and together with the Senior Notes, the “Notes”) was also issued by the Issuer pursuant to the Agreement. The Agreement also sets forth the terms of a loan (the “Loan” and together with the Notes, the “Credit”) under which the Issuer is the borrower.

Reference is hereby made to the Agreement, a copy of which is on file in the Principal Office of the Secured Party, and to all of the provisions of which any Registered Owner of this Senior Note by the acceptance hereof hereby assents, for definitions of terms; the description of and the nature and extent of the security for the Credit secured thereunder; the Eligible Loans being financed by the issuance of the Credit; the revenues and other moneys pledged to the payment of the principal of and premium, if any, and interest, if any, on the Credit; the nature and extent and manner of enforcement of the pledge; the conditions upon which the Principal Amount of this Senior Note may be decreased; the conditions upon which the Agreement may be amended or supplemented with or without the consent of the Creditors; the rights and remedies of the Registered Owner hereof with respect hereto and thereto, including the limitations upon the right of a Registered Owner hereof to institute any suit, action or proceeding in equity or at law with respect hereto and thereto; the rights, duties and obligations of the Issuer and the Secured Party thereunder; the terms and provisions upon which the liens, pledges, charges, trusts and covenants made therein may be discharged at or prior to the maturity of this Senior Note, and this Senior Note shall thereafter no longer be secured by the Agreement, or be deemed to be Outstanding thereunder; and for the other terms and provisions thereof.

Notwithstanding any provision of this Senior Note to the contrary, in no event shall the cumulative amount of interest paid or payable on this Senior Note (including interest calculated as provided herein, plus any other amounts that constitute interest on this Senior Note under applicable law, which are contracted for, charged, reserved, taken or received pursuant to this Senior Note or related documents) calculated from the date of issuance of this Senior Note through any subsequent day during the term of this Senior Note or otherwise prior to payment in full of this Senior Note exceed the amount permitted by applicable law. If applicable law is ever judicially interpreted so as to render usurious any amount called for under this Senior Note or related documents or otherwise contracted for, charged, reserved, taken or received in connection

B-1-2

with this Senior Note, or if the acceleration of the Stated Maturity Date of this Senior Note results in payment to or receipt by the Registered Owner or any former Registered Owner hereof of any interest in excess of that permitted by applicable law, then notwithstanding any provision of this Senior Note or related documents to the contrary all excess amounts theretofore paid or received with respect to this Senior Note shall be credited on the principal balance of this Senior Note (or, if this Senior Note has been paid or would thereby be paid in full, refunded by the recipient thereof), and the provisions of this Senior Note and related documents shall immediately be deemed reformed and the amounts thereafter collectible hereunder and thereunder reduced, without the necessity of the execution of any new document, so as to comply with the applicable law, but so as to permit the recovery of the fullest amount otherwise called for under this Senior Note and under the related documents.

The Credit is and will be secured by the Trust Estate pledged as security therefor as provided in the Agreement.

The entire unpaid Principal Amount of this Senior Note shall be due and payable on the Stated Maturity Date. Notwithstanding the foregoing, the entire unpaid Principal Amount of the Credit shall be due and payable on the date on which (a) an Event of Default shall have occurred and be continuing and (b) either the Secured Party or the Majority Priority Class Creditors shall have declared the Credit to be immediately due and payable in the manner provided in the Agreement.

Payments of interest on this Senior Note on each Payment Date, together with the installment of principal, if any, to the extent not in full payment of this Senior Note, shall be paid to the Person in whose name this Senior Note is registered on the related Record Date by wire transfer in immediately available funds to the account designated by the Registered Owner. If funds are expected to be available, as provided in the Agreement, for payment in full of the then Outstanding Principal Amount of this Senior Note on a Payment Date, then the Secured Party shall notify the Person in whose name this Senior Note is registered at the close of business on the Record Date preceding the Payment Date on which the Issuer expects that the final installment of principal of and interest on this Senior Note will be paid. Such notice shall be mailed or transmitted by facsimile prior to such final Payment Date.

As provided in the Agreement and subject to certain limitations set forth therein, the transfer of this Senior Note may be registered upon the records of the Secured Party upon surrender for transfer of this Senior Note at the Principal Office of the Secured Party, duly endorsed for transfer and accompanied by an assignment and assumption agreement in the form set forth in the Senior Notes Note Purchase Agreement duly executed by the Registered Owner or its attorney duly authorized in writing and by the transferee, and thereupon the Issuer shall execute and the Secured Party shall authenticate and deliver in the name of the transferee or transferees a new fully registered Senior Note of the same Principal Amount and interest rate and the same Stated Maturity Date.

The person in whose name this Senior Note shall be registered shall be deemed and regarded as the absolute owner hereof for all purposes, and payment of either principal or interest shall be made only to or upon the written order of the Registered Owner hereof or its legal representative, but such registration may be changed as provided in the Agreement. All such payments shall be valid and effectual to satisfy and discharge the liability upon this Senior Note to the extent of the sum or sums paid.

B-1-3

THE TRANSFER OF THIS SENIOR NOTE IS SUBJECT TO CERTAIN TRANSFER RESTRICTIONS SET FORTH IN THE AGREEMENT. Each Registered Owner and each transferee of a Senior Note shall represent and warrant that this Senior Note may not be acquired by an employee benefit plan or other retirement arrangement subject Section 406 of ERISA or Section 4975 of the Code or by any federal, state, local, non-U.S. or other plan which is subject to substantially similar law (“Similar Law”), (collectively, a “Plan”) or a Person acting on behalf of any such Plan or a Person using the assets of any such Plan, unless the acquisition, holding and disposition of this Senior Note will not give rise to a non-exempt prohibited transaction under Section 406 of ERISA or Section 4975 of the Code because it will satisfy the requirements for exemptive relief under Prohibited Transaction Class Exemption (“PTCE”) 84-14, PTCE 90-1, PTCE 91-38, PTCE 95-60, PTCE 96-23 or the statutory exemption for nonfiduciary service providers under Section 408(b)(17) of ERISA or Section 4975(d)(20) of the Code or another applicable administrative or statutory exemption and in the case of a Plan subject to Similar Law, will not result in a non-exempt violation of such substantially similar law.

The Secured Party shall require the payment by any Registered Owner requesting exchange or transfer of any tax or other governmental charge required to be paid with respect to such exchange or transfer. The applicant for any such transfer or exchange may be required to pay all taxes and governmental charges in connection with such transfer or exchange, other than exchanges pursuant to the Agreement.

Unless the certificate of authentication hereon has been executed by the Secured Party whose name appears below by manual signature, this Senior Note shall not be entitled to any benefit under the Agreement, or be valid or obligatory for any purpose.

The term “Issuer” as used in this Senior Note includes any successor to the Issuer under the Agreement.

The Issuer is permitted by the Agreement, under certain circumstances, to merge or consolidate, subject to the rights of the Secured Party and the Creditors under the Agreement.

The Agreement permits, with certain exceptions as therein provided, the amendment thereof and the modification of the rights and obligations of the Issuer and the rights of the Registered Owner hereof and other Creditors under the Agreement, or the waiver of certain past defaults under the Agreement and their consequences, at any time by the Issuer with specified percentages in aggregate principal amount or, in certain circumstances, without the consent of Creditors.

This Senior Note is issuable only in registered form as provided in the Agreement, subject to certain limitations therein set forth.

This Senior Note shall be held and owned upon the express condition that, to the extent permitted by law, the conditions set forth in Section 2.04 of the Agreement are exclusive with respect to the replacement and payment of mutilated, destroyed, lost or stolen Notes, negotiable instruments or other securities.

B-1-4

This Senior Note shall be construed in accordance with the laws of the State of New York, without reference to its conflict of law provisions, and the obligations, rights and remedies of the parties hereunder and thereunder shall be determined in accordance with such laws.

No reference herein to the Agreement and no provision of this Senior Note or of the Agreement shall alter or impair the obligation of the Issuer, which is absolute and unconditional, to pay the principal of and interest on this Senior Note at the times, place and rate, and in the coin or currency, herein prescribed.

It is expressly understood and agreed by the holder hereof that (a) each of the Agreement and this Senior Note is executed and delivered by Deutsche Bank Trust Company Delaware, not individually or personally but solely as Owner Trustee, in the exercise of the powers and authority conferred and vested in it; (b) each of the representations, undertakings and agreement in the Agreement and this Senior Note made on the part of the Issuer is made and intended not as personal representations, undertakings and agreements by Deutsche Bank Trust Company Delaware or the Administrator of the Issuer but is made and intended for the purpose of binding only the Issuer; (c) nothing contained in the Agreement or this Senior Note shall be construed as creating any liability on Deutsche Bank Trust Company Delaware or the Administrator (except as provided in the Administration Agreement), individually or personally, to perform any covenant either expressly contained in or implied by the Agreement or this Senior Note, all such liability, if any, being expressly waived by the holder hereof and by any Person claiming by, through or under the holder hereof; and (d) under no circumstances shall Deutsche Bank Trust Company Delaware or the Administrator be personally liable for the payment of any indebtedness or expenses of the Issuer or be liable for the breach or failure of any obligations, representation, warranty or covenant made or undertaken by the Issuer under the Agreement, this Senior Note or the other Basic Documents.

B-1-5

IN WITNESS WHEREOF, the Issuer has caused this instrument to be duly executed, manually or in facsimile, as of the date set forth below.

PEAKS TRUST 2009-1, a Delaware statutory trust
By:	DEUTSCHE BANK TRUST COMPANY DELAWARE, not in its individual capacity or personal capacity but solely in its capacity as Owner Trustee
By
Name:
Title:
By
Name:
Title:

Date:                      ,             

B-1-6

SECURED PARTY’S CERTIFICATE OF AUTHENTICATION

This is one of the Senior Notes designated above and referred to in the within-mentioned Agreement.

DEUTSCHE BANK TRUST COMPANY AMERICAS, not in its individual capacity but solely as Secured Party
By
	Authorized Signatory

Date:                      ,             

B-1-7

ASSIGNMENT

Social Security or taxpayer I.D. or other identifying number of assignee

FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto

(name and address of assignee)

the within Senior Note and all rights thereunder, and hereby irrevocably constitutes and appoints

attorney, to transfer said Senior Note on the books kept for registration thereof, with full power of substitution in the premises.

Dated:                         

By	*
Name
Title
Signature Guaranteed:
By	*
*NOTICE: Signature(s) should be guaranteed by a guarantor institution participating in the Securities Transfer Agents Medallion Program or in such other guarantee program acceptable to the Secured Party. The Assignor’s signature to this assignment must correspond with the name as it appears upon the face of the within Senior Note in every particular without alteration or any change whatever.

B-1-8

EXHIBIT B-2

FORM OF SUBORDINATED NOTE

THIS SUBORDINATED NOTE HAS NOT BEEN AND WILL NOT BE REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR REGISTERED OR QUALIFIED UNDER ANY STATE SECURITIES OR BLUE SKY LAW OF ANY STATE. THE HOLDER HEREOF, BY PURCHASING THIS SUBORDINATED NOTE, AGREES THAT THIS SUBORDINATED NOTE MAY BE REOFFERED, RESOLD, PLEDGED OR OTHERWISE TRANSFERRED ONLY IN COMPLIANCE WITH THE SECURITIES ACT AND OTHER APPLICABLE LAWS AND ONLY PURSUANT TO AN EXEMPTION AVAILABLE UNDER THE SECURITIES ACT AND IN ACCORDANCE WITH ANY APPLICABLE STATE SECURITIES LAWS. BY ENTERING INTO THE SUBORDINATED NOTE NOTE PURCHASE AGREEMENT, THE PURCHASER SHALL HAVE REPRESENTED THAT IT IS (I) AN INSTITUTIONAL “ACCREDITED INVESTOR” AS THAT TERM IS DEFINED UNDER RULE 501(a)(1), (2), (3) or (7) OF REGULATION D PROMULGATED UNDER THE SECURITIES ACT OR (II) A “QUALIFIED INSTITUTIONAL BUYER” AS THAT TERM IS DEFINED IN RULE 144A PROMULGATED UNDER THE SECURITIES ACT.

THE PRINCIPAL OF THIS SUBORDINATED NOTE IS PAYABLE AS SET FORTH HEREIN. ACCORDINGLY, THE OUTSTANDING PRINCIPAL AMOUNT OF THIS SUBORDINATED NOTE AT ANY TIME MAY BE LESS THAN THE AMOUNT SHOWN ON THE FACE HEREOF. THIS SUBORDINATED NOTE IS NOT GUARANTEED OR INSURED BY ANY GOVERNMENTAL AGENCY. THE REGISTERED OWNER OF THIS NOTE IS REQUIRED TO MAKE SUBORDINATED NOTE ADVANCES IN ACCORDANCE WITH THE PROVISIONS OF THE INDENTURE AND CREDIT AGREEMENT.

PEAKS TRUST 2009-1

SUBORDINATED NOTE

REGISTERED NO. R-     REGISTERED $[            ]

PEAKS TRUST 2009-1, a statutory trust organized and existing under the laws of the State of Delaware (herein referred to as the “Issuer”), for value received, hereby promises to pay to [            ], or registered assigns (the “Registered Owner”), but solely from the revenues and receipts hereinafter specified and not otherwise, a principal sum of [            ] MILLION DOLLARS AND NO/100 ($[            ]), or such lesser amount as determined in accordance with the Indenture and Credit Agreement (as defined herein) (the “Principal Amount”) on the Payment Date in March 2026 (the “Stated Maturity Date”), subject to the right of prior payment as described herein. This Subordinated Note shall not bear interest.

The principal of this Subordinated Note is payable in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts. All payments made by the Issuer with respect to this Subordinated Note shall be applied to the outstanding Principal Amount of this Subordinated Note.

B-2-1

This Note is a Subordinated Note (the “Subordinated Note”) issued by the Issuer pursuant to the Indenture and Credit Agreement, dated as of January 20, 2010 (the “Agreement”), by and among the Issuer (by Deutsche Bank Trust Company Delaware, in its capacity as owner trustee (the “Owner Trustee”)), Deutsche Bank Trust Company Americas, a banking corporation duly organized and operating under the laws of the State of New York, as indenture trustee (in such capacity, the “Indenture Trustee”) and as collateral agent (in such capacity, the “Collateral Agent” and in its capacities as Indenture Trustee and as Collateral Agent, the “Secured Party”) and Deutsche Bank National Trust Company, as lender trustee (the “Lender Trustee”) (capitalized terms used but not defined herein being defined in the Agreement, which also contains rules as to usage that shall be applicable herein). This Subordinated Note is subject to all terms and provisions of the Agreement. Senior Notes (the “Senior Notes,” and together with the Subordinated Note, the “Notes”) were also issued by the Issuer pursuant to the Agreement. The Agreement also sets forth the terms of a loan (the “Loan” and together with the Notes, the “Credit”) under which the Issuer is the borrower.

The indebtedness evidenced by this Subordinated Note is, to the extent and in the manner provided by the Indenture and Credit Agreement, expressly subordinate and subject in right of payment to the prior payment of the Senior Credit, whether outstanding at the date of the Subordinated Note Note Purchase Agreement or thereafter incurred.

Reference is hereby made to the Agreement, a copy of which is on file in the Principal Office of the Secured Party, and to all of the provisions of which any Registered Owner of this Subordinated Note by the acceptance hereof hereby assents, for definitions of terms; the description of and the nature and extent of the security for the Credit secured thereunder; the Eligible Loans being financed by the issuance of the Credit; the revenues and other moneys pledged to the payment of the principal of and premium, if any, and interest, if any, on the Credit; the nature and extent and manner of enforcement of the pledge; the conditions upon which the Principal Amount of this Subordinated Note may be increased and decreased; the conditions upon which the Agreement may be amended or supplemented with or without the consent of the Creditors; the rights and remedies of the Registered Owner hereof with respect hereto and thereto, including the limitations upon the right of a Registered Owner hereof to institute any suit, action or proceeding in equity or at law with respect hereto and thereto; the rights, duties and obligations of the Issuer and the Secured Party thereunder; the terms and provisions upon which the liens, pledges, charges, trusts and covenants made therein may be discharged at or prior to the maturity of this Subordinated Note, and this Subordinated Note shall thereafter no longer be secured by the Agreement, or be deemed to be Outstanding thereunder; and for the other terms and provisions thereof.

The Credit is and will be secured by the Trust Estate pledged as security therefor as provided in the Agreement.

The entire unpaid Principal Amount of this Subordinated Note shall be due and payable on the Maturity Date. Notwithstanding the foregoing, the entire unpaid Principal Amount of the Credit shall be due and payable on the date on which (a) an Event of Default shall have occurred and be continuing and (b) either the Secured Party or the Majority Priority Class Creditors shall have declared the Credit to be immediately due and payable in the manner provided in the Agreement.

B-2-2

Payments of principal, to the extent not in full payment of this Subordinated Note, shall be paid to the Person in whose name this Subordinated Note is registered on the related Record Date by wire transfer in immediately available funds to the account designated by the Registered Owner. If funds are expected to be available, as provided in the Agreement, for payment in full of the then Outstanding Principal Amount of this Subordinated Note on a Payment Date, then the Secured Party shall notify the Person in whose name this Subordinated Note is registered by the close of business on the Record Date preceding the Payment Date on which the Issuer expects that the final installment of principal of this Subordinated Note will be paid. Such notice shall be mailed or transmitted by facsimile prior to such final Payment Date.

As provided in the Agreement and subject to certain limitations set forth therein, the transfer of this Subordinated Note may be registered upon the records of the Secured Party upon surrender for transfer of this Subordinated Note at the Principal Office of the Secured Party, duly endorsed for transfer and accompanied by an assignment and assumption agreement in the form set forth in the Note Purchase Agreement duly executed by the Registered Owner or its attorney duly authorized in writing and by the transferee, and thereupon the Issuer shall execute and the Secured Party shall authenticate and deliver in the name of the transferee or transferees a new fully registered Subordinated Note of the same Principal Amount and the same Maturity Date.

The person in whose name this Subordinated Note shall be registered shall be deemed and regarded as the absolute owner hereof for all purposes, and payment of principal shall be made only to or upon the written order of the Registered Owner hereof or its legal representative, but such registration may be changed as provided in the Agreement. All such payments shall be valid and effectual to satisfy and discharge the liability upon this Subordinated Note to the extent of the sum or sums paid.

THE TRANSFER OF THIS SUBORDINATED NOTE IS SUBJECT TO CERTAIN TRANSFER RESTRICTIONS SET FORTH IN THE AGREEMENT. Each Registered Owner and each transferee of a Subordinated Note shall represent and warrant that this Subordinated Note may not be acquired by an employee benefit plan or other retirement arrangement subject Section 406 of ERISA or Section 4975 of the Code or by any federal, state, local, non-U.S. or other plan which is subject to substantially similar law (collectively, a “Plan”) or a person acting on behalf of any such Plan or a person using the assets of any such Plan.

The Secured Party shall require the payment by any Registered Owner requesting exchange or transfer of any tax or other governmental charge required to be paid with respect to such exchange or transfer. The applicant for any such transfer or exchange may be required to pay all taxes and governmental charges in connection with such transfer or exchange, other than exchanges pursuant to the Agreement.

Unless the certificate of authentication hereon has been executed by the Secured Party whose name appears below by manual signature, this Subordinated Note shall not be entitled to any benefit under the Agreement, or be valid or obligatory for any purpose.

The term “Issuer” as used in this Subordinated Note includes any successor to the Issuer under the Agreement.

B-2-3

The Issuer is permitted by the Agreement, under certain circumstances, to merge or consolidate, subject to the rights of the Secured Party and the Creditors under the Agreement.

The Agreement permits, with certain exceptions as therein provided, the amendment thereof and the modification of the rights and obligations of the Issuer and the rights of the Registered Owner hereof and other Creditors under the Agreement, or the waiver of certain past defaults under the Agreement and their consequences, at any time by the Issuer with specified percentages in aggregate principal amount or, in certain circumstances, without the consent of Creditors.

This Subordinated Note is issuable only in registered form as provided in the Agreement, subject to certain limitations therein set forth.

This Subordinated Note shall be held and owned upon the express condition that, to the extent permitted by law, the conditions set forth in Section 2.04 of the Agreement are exclusive with respect to the replacement and payment of mutilated, destroyed, lost or stolen Notes, negotiable instruments or other securities.

This Subordinated Note shall be construed in accordance with the laws of the State of New York, without reference to its conflict of law provisions, and the obligations, rights and remedies of the parties hereunder and thereunder shall be determined in accordance with such laws.

No reference herein to the Agreement and no provision of this Subordinated Note or of the Agreement shall alter or impair the obligation of the Issuer, which is absolute and unconditional, to pay the principal of this Subordinated Note at the times, place and in the coin or currency, herein prescribed.

It is expressly understood and agreed by the holder hereof that (a) each of the Agreement and this Subordinated Note is executed and delivered by Deutsche Bank Trust Company Delaware, not individually or personally but solely as Owner Trustee, in the exercise of the powers and authority conferred and vested in it; (b) each of the representations, undertakings and agreement in the Agreement and this Subordinated Note made on the part of the Issuer is made and intended not as personal representations, undertakings and agreements by Deutsche Bank Trust Company Delaware or the Administrator of the Issuer but is made and intended for the purpose of binding only the Issuer; (c) nothing contained in the Agreement or this Subordinated Note shall be construed as creating any liability on Deutsche Bank Trust Company Delaware or the Administrator (except as provided in the Administration Agreement), individually or personally, to perform any covenant either expressly contained in or implied by the Agreement or this Subordinated Note, all such liability, if any, being expressly waived by the holder hereof and by any Person claiming by, through or under the holder hereof; and (d) under no circumstances shall Deutsche Bank Trust Company Delaware or the Administrator be personally liable for the payment of any indebtedness or expenses of the Issuer or be liable for the breach or failure of any obligations, representation, warranty or covenant made or undertaken by the Issuer under the Agreement, this Subordinated Note or the other Basic Documents.

B-2-4

IN WITNESS WHEREOF, the Issuer has caused this instrument to be duly executed, manually or in facsimile, as of the date set forth below.

PEAKS TRUST 2009-1, a Delaware statutory trust
By:	DEUTSCHE BANK TRUST COMPANY DELAWARE, not in its individual capacity or personal capacity but solely in its capacity as Owner Trustee
By
Name:
Title:
By
Name:
Title:

Date:                      ,         

B-2-5

SECURED PARTY’S CERTIFICATE OF AUTHENTICATION

This is the Subordinated Note designated above and referred to in the within-mentioned Agreement.

DEUTSCHE BANK TRUST COMPANY AMERICAS, not in its individual capacity but solely as Secured Party
By
	Authorized Signatory

Date:                      ,         

B-2-6

ASSIGNMENT

Social Security or taxpayer I.D. or other identifying number of assignee

FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto

(name and address of assignee)

the within Subordinated Note and all rights thereunder, and hereby irrevocably constitutes and appoints

attorney, to transfer said Subordinated Note on the books kept for registration thereof, with full power of substitution in the premises.

Dated:                         

By	*
Name
Title
Signature Guaranteed:
By	*
*NOTICE: Signature(s) should be guaranteed by a guarantor institution participating in the Securities Transfer Agents Medallion Program or in such other guarantee program acceptable to the Secured Party. The Assignor’s signature to this assignment must correspond with the name as it appears upon the face of the within Subordinated Note in every particular without alteration or any change whatever.

B-2-7

EXHIBIT B-3

[FORM OF LOAN NOTE]

$[        ] January [    ], 2010      New York, New York

THE PRINCIPAL OF THE LOAN IS PAYABLE AS SET FORTH HEREIN. ACCORDINGLY, THE OUTSTANDING PRINCIPAL AMOUNT OF THE LOAN AT ANY TIME MAY BE LESS THAN THE AMOUNT SHOWN ON THE FACE HEREOF. THE LOAN IS NOT GUARANTEED OR INSURED BY ANY GOVERNMENTAL AGENCY.

FOR VALUE RECEIVED, PEAKS TRUST 2009-1, a Delaware statutory trust (the “Borrower”), hereby promises to pay to the order of [    ] (the “Lender”), at the principal office of the Lender at [    ], in lawful money of the United States, and in immediately available funds, the principal sum of [    ] ($[        ]) (or such lesser amount as shall equal the aggregate unpaid principal amount of the Loan made by the Lender to the Borrower under the terms of the Indenture and Credit Agreement and the Loan Agreement (each as defined below)), on the dates and in the principal amounts provided in the Indenture and Credit Agreement, and to pay interest on the unpaid principal amount of each such Loan, at such office, in like money and funds, for the period commencing on the date of such Loan until such Loan shall be paid in full, at the rates per annum and on the dates provided in the Indenture and Credit Agreement.

This note is a Loan Note (a “Loan Note”) evidencing an interest in the Loan provided for in the Indenture and Credit Agreement, dated as of January 20, 2010 (the “Indenture and Credit Agreement”), by and among the Issuer (by Deutsche Bank Trust Company Delaware, in its capacity as owner trustee (the “Owner Trustee”)), Deutsche Bank Trust Company Americas, a banking corporation duly organized and operating under the laws of the State of New York, as indenture trustee (in such capacity, the “Indenture Trustee”) and as collateral agent (in such capacity, the “Collateral Agent” and in its capacities as Indenture Trustee and as Collateral Agent, the “Secured Party”) and Deutsche Bank National Trust Company, as lender trustee (the “Lender Trustee”) (capitalized terms used but not defined herein being defined in the Indenture and Credit Agreement, which also contains rules as to usage that shall be applicable herein). This Loan Note evidences the Loan made by the Lender to the Borrower pursuant to the loan agreement (the Loan Agreement”) dated as of January 20, 2010 among the Borrower, the Collateral Agent and the Lender. The Loan is subject to all terms and provisions of the Indenture and Credit Agreement and the Loan Agreement. Senior Notes (the “Senior Notes,”) and a Subordinated Note (the “Subordinated Note” and together with the Senior Notes, the “Notes” and the Notes, together with the Loan, the “Credit”) were also issued by the Issuer pursuant to the Indenture and Credit Agreement.

The principal of and interest on the Loan are payable in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts. All payments made by the Borrower with respect to the Loan shall be applied first to interest due and payable on this Loan as provided above and then to the unpaid principal amount of this Loan.

B-2-1

The obligations of the Borrower to pay principal and interest under the Loan and certain other obligations under the Loan Agreement are non-recourse obligations of the Borrower, payable solely from the sources described in the Indenture and Credit Agreement.

THE TRANSFER OR ASSIGMENT OF INTERESTS IN THE LOAN IS SUBJECT TO CERTAIN TRANSFER RESTRICTIONS SET FORTH IN THE LOAN AGREEMENT AND THE INDENTURE AND CREDIT AGREEMENT.

PEAKS TRUST 2009-1, a Delaware statutory trust
By:	DEUTSCHE BANK TRUST COMPANY DELAWARE, not in its individual capacity or personal capacity but solely in its capacity as Owner Trustee
By
Name:
Title:
By
Name:
Title:

B-2-2

SECURED PARTY’S CERTIFICATE OF AUTHENTICATION

This is the Loan Note designated above and referred to in the within-mentioned Indenture and Credit Agreement.

DEUTSCHE BANK TRUST COMPANY AMERICAS, not in its individual capacity but solely as Secured Party
By
	Authorized Signatory

Date:                      ,         

B-2-3

EXHIBIT C

FORM OF ADMINISTRATOR’S

PAYMENT DATE CERTIFICATE

This Payment Date Certificate (the “Certificate”) is being provided by Access Group, Inc., as administrator (the “Administrator”), to Deutsche Bank Trust Company Americas, as trustee (in such capacity, the “Indenture Trustee”) and as collateral agent (in such capacity, the “Collateral Agent” and as in its capacities as Indenture Trustee and as Collateral Agent, the “Secured Party”), pursuant to Section 5.03(b) of the Amended and Restated Indenture and Credit Agreement, dated as of December 31, 2010 (the “Agreement”), by and among PEAKS Trust 2009-1 (the “Issuer”), the Secured Party and Deutsche Bank National Trust Company, as lender trustee (the “Lender Trustee”). All capitalized terms used in this Certificate and not otherwise defined shall have the same meanings as assigned to such terms in the Agreement.

Pursuant to this Certificate, the Administrator hereby directs the Secured Party to make the following deposits and distributions to the Persons specified below by 3:00 p.m. (New York time) on                  ,          (the “Payment Date”), to the extent of the amount of Available Funds on deposit in the Collection Account on such Payment Date. The Secured Party shall make the following distributions in the following order of priority, and the Secured Party shall comply with such instructions:

(i)	(a)	the Secured Party Fee to the Secured Party,	$	—
	(b)	the Owner Trustee Fee to the Owner Trustee,	$	—
	(c)	the Administration Fee to the Administrator,	$	—
	(d)	the Servicing Fees to the Servicer, and	$	—
	(e)	any unpaid Secured Party Fees, Owner Trustee Fees, Administration Fees and Servicing Fees, if any, from prior Payment Dates to the Secured Party, the Owner Trustee, the Administrator and the Servicer due on the Payment Date,	$	—
		payments described in (a) through (e) above to be made ratably based on amounts due, without preference or priority of any kind, due on the Payment Date, and in each case with such fees remaining unpaid from prior Payment Dates;

C-1

(ii) (A) on any Payment Date prior to the occurrence of an Event of Default, to pay to the Secured Party, the Owner Trustee, the Lender Trustee, the Administrator, the Servicer and the Originating Lender, pro rata, based on amounts owed to each such party, without preference or priority of any kind, extraordinary fees and expenses or indemnification amounts owed to such party by the Issuer pursuant to the Basic Documents or any costs and expenses of replacing the Secured Party, the Owner Trustee, the Lender Trustee, the Servicer or the Administrator (but only to the extent required under the terms of the Basic Documents), up to an annual cap equal to $200,000, due on such Payment Date, as follows:   to the Secured Party: to the Owner Trustee: to the Lender Trustee: to the Administrator: to the Servicer: to the Originating Lender:   and   (B) on any Payment Date on or after the occurrence of an Event of Default, sequentially, as follows:   (1) first, to pay to the Secured Party, extraordinary fees and expenses or indemnification amounts owed to the Secured Party by the Issuer pursuant to the Basic Documents or any costs and expenses of replacing the Secured Party (but only to the extent required under the terms of the Basic Documents) due on such Payment Date, up to an aggregate maximum amount (including all such payments on prior Payment Dates) of $350,000; and   (2) to pay to the Owner Trustee, the Lender Trustee, the Administrator, the Servicer and the Originating Lender, pro rata, based on amounts owed to each such party, without preference or priority of any kind, extraordinary fees and expenses or indemnification amounts owed to such party by the Issuer pursuant to the Basic Documents or any costs and expenses of replacing the Owner Trustee, the Lender Trustee, the Servicer or the Administrator (but only to the extent required under the terms of the Basic Documents), up to an annual cap equal to $200,000, due on such Payment Date as follows:   to the Owner Trustee: to the Lender Trustee: to the Administrator: to the Servicer: to the Originating Lender:   . $         —  

C-2

(iii)	(a)	accrued and unpaid interest on the Senior Credit to the Senior Creditors, and	$	—
	(b)	the Arranging Agent Fee to the Arranging Agent, and	$	—
		payments described in (a) and (b) above to be made ratably based on amounts due, without preference or priority of any kind, due on the Payment Date;
(iv)		any Arranging Agent Fee Carryover Amount due to the Arranging Agent;	$	—
(v)	(a)	the Principal Payment Amount, in repayment of principal until the Outstanding Amount of the Senior Credit is reduced to zero, to the Senior Creditors, and	$	—
	(b)	on or prior to the Payment Date in January 2013, the Call Premium for such Payment Date, to the Senior Creditors, and	$	—
		payments described in (a) and (b) above to be made ratably based on amounts due, without preference or priority of any kind, due on the Payment Date;
(vi)		to pay to the Senior Creditors, any amounts due to the Senior Creditors pursuant to Section 15 of the Senior Notes Note Purchase Agreement or the Loan Agreement, as applicable;
(vii)		to the Secured Party, the Owner Trustee, the Lender Trustee, the Administrator, the Servicer and the Originating Lender, pro rata, based on amounts owed to each such party, without preference or priority of any kind, any extraordinary fees and expenses or indemnification amounts due and owing to such party by the Issuer pursuant to the Basic Documents as of such Payment Date and not previously paid pursuant to clause (ii) above, as follows: to the Secured Party: to the Owner Trustee: to the Lender Trustee: to the Administrator: to the Servicer: to the Originating Lender:	$	—
(viii)		to the Guarantor, in repayment of any Guaranteed Payments made by the Guarantor under the Guarantee Agreement;	$	—

C-3

(ix)	to the Registered Owner of the Subordinated Note, in repayment of the Subordinated Note, until the principal balance of the Subordinated Note has been reduced to zero;	$	—
(x)	transfer any remaining amount to the Issuer for distribution in accordance with the terms of the Trust Agreement.	$	—
	Total Distributions	$	—

The Administrator further hereby directs the Secured Party to withdraw from the Reserve Account an amount equal to $            , representing the shortfall of Available Funds in the Collection Account needed to make the transfers required by Section 5.03(b)(i) and 5.03(b)(iii)(a) of the Agreement. The Secured Party shall make the following distributions in the following order of priority, and the Secured Party shall comply with such instructions:

(i)	(a)	the Secured Party Fee to the Secured Party,	$	—
	(b)	the Owner Trustee Fee to the Owner Trustee,	$	—
	(c)	the Administration Fee to the Administrator,	$	—
	(d)	the Servicing Fees to the Servicer, and	$	—
	(e)	any unpaid Secured Party Fees, Owner Trustee Fees, Administration Fees and Servicing Fees, if any, from prior Payment Dates to the Secured Party, the Owner Trustee, the Administrator and the Servicer due on the Payment Date, and	$	—
		payments described in (a) through (e) above to be made ratably based on amounts due, without preference or priority of any kind, due on the Payment Date, and in each case with such fees remaining unpaid from prior Payment Dates;
(ii)		accrued and unpaid interest on the Senior Credit to the Senior Creditors, to be made ratably based on amounts due, without preference or priority of any kind, due on the Payment Date	$	—
		Total Distributions	$	—

The Administrator further directs the Secured Party, to the extent amounts are on deposit in the Reserve Account on the Monthly Measurement Date in January 2013, to withdraw all amounts remaining on deposit therein and transfer such amounts to the Collection Account to become part of Available Funds on the related Payment Date.

The Administrator further directs the Secured Party, to the extent amounts are on deposit in the Acquisition Account on any Payment Date on or after the earlier of (i) the Payment Date in July 2011 or (ii) the first Payment Date immediately following the end of the Transfer Period, to withdraw all amounts remaining on deposit therein in excess of the sum of (1) those amounts required for the purchase of additional Participation Interests with respect to Partially Disbursed Student Loans and (2) amounts required for the purchase of Eligible Loans that are scheduled to be disbursed, or Participation Interests for which the first scheduled disbursement is, prior to

C-4

July 31, 2011 (including with respect to the amounts described in clauses (1) and (2), all associated Syndication Agent Fees and Originating Lender Premiums), and transfer such amounts to the Collection Account to become part of Available Funds on the related Payment Date.

The Administrator hereby certifies, in reliance on information provided by the Secured Party, that the information herein is true and accurate in all material respects and is in compliance with the provisions of the Agreement.

IN WITNESS WHEREOF, the Administrator has caused this Certificate to be duly executed and delivered as of the date written below.

ACCESS GROUP, INC., as Administrator
By
	Authorized Signatory

Date:                      ,         

C-5

EXHIBIT D-1

FORM OF INVESTMENT LETTER FOR SENIOR NOTE

                     ,         

PEAKS Trust 2009-1, as Issuer

Deutsche Bank Trust Company Americas, as Secured Party

Deutsche Bank National Trust Company, as Lender Trustee

Deutsche Bank Trust Company Delaware, as Owner Trustee

Re: PEAKS Trust 2009-1 (the “Issuer”)

Student Loan Asset-Backed Senior Notes (the “Notes”)

Ladies and Gentlemen:

[—] (the “Purchaser”) is today purchasing in a private sale from [—] (the “Seller”) $[—] aggregate Senior Credit Balance of the above-captioned Notes, issued pursuant to the Amended and Restated Indenture and Credit Agreement, dated as of December 31, 2010 (the “Agreement”), among the Issuer, Deutsche Bank Trust Company Americas, as indenture trustee (in such capacity, the “Indenture Trustee”) and as collateral agent (in such capacity, the “Collateral Agent” and in its capacities as Indenture Trustee and as Collateral Agent, the “Secured Party”) and Deutsche Bank National Trust Company, as lender trustee (the “Lender Trustee”).

In connection with the purchase of the Notes, the Purchaser hereby represents and warrants to each of you as follows:

(a) The Purchaser understands that the Notes have not been registered under the Securities Act of 1933, as amended (the “Securities Act”) or under the securities laws of any state or other jurisdiction (“blue sky laws”), and that the Notes may not be sold, resold, pledged or otherwise transferred except as permitted in the following two sentences. The Purchaser agrees, on its behalf and on behalf of any accounts for which the Purchaser is acting as hereinafter stated, that such Notes may be resold, pledged or transferred only (i) to a person who purchases either all or a percentage interest in the Purchaser’s interest in the Notes, and (ii) either (A) so long as such Notes are eligible for resale pursuant to Rule 144A under the Securities Act (“Rule 144A”), to a person whom the Purchaser reasonably believes after due inquiry is a “qualified institutional buyer” as defined in Rule 144A acting for its own account (and not for the account of others) or as a fiduciary or agent for others (which others also are “qualified institutional buyers”) to whom notice is given that the resale, pledge or transfer is being made in reliance on Rule 144A, (B) to a person it reasonably believes is an institutional “accredited investor” as defined in Rule 501(a)(1), (2), (3) or (7) of Regulation D of the Securities Act acting for its own account (and not for the account of others) or as a fiduciary or agent for others (which others also are institutional “accredited investors”), or (C) in a sale, pledge or

D-1-1

other transfer made in a transaction otherwise exempt from the registration requirements of the Securities Act and applicable blue sky laws, in which case the Secured Party shall require that (I) both the prospective transferor and the prospective transferee certify to the Secured Party on behalf of the Issuer in writing the facts surrounding such transfer, which certification shall be in form and substance reasonably satisfactory to the Secured Party and (II) a written opinion of counsel satisfactory to the Secured Party be provided to the Secured Party to the effect that such transfer will not violate the Securities Act or applicable blue sky laws. The Purchaser will notify any purchaser of the Notes from it of the above resale restrictions, if then applicable.

(b) The Purchaser is either (i) a “qualified institutional buyer” as defined under Rule 144A under the Securities Act or (ii) an institutional “accredited investor” as defined in Rule 501(a)(1), (2), (3) or (7) of Regulation D of the Securities Act, and in each case is purchasing for its own account (and not for the account of others) or as a fiduciary or agent for others (which others also are “qualified institutional buyers” or institutional “accredited investors,” as applicable). The Purchaser is familiar with Rule 144A or Rule 501(a) under Regulation D, as applicable, under the Securities Act and is aware that the Seller of the Notes and other parties intend to rely on the statements made herein and the exemption from the registration requirements of the Securities Act provided by Rule 144A or Rule 501(a) under Regulation D, as applicable. The Purchaser acknowledges that it has received the information specified in paragraph (d)(4) of Rule 144A under the Securities Act. The Purchaser is aware that it (or any account for which it is purchasing) may be required to bear the economic risk of an investment in the Notes for an indefinite period, and it (or such account) is able to bear such risk for an indefinite period.

(c) [Reserved].

(d) The Purchaser agrees that if at some time it wishes to dispose of or exchange any of the Notes, it will not transfer or exchange any of the Notes unless such transfer or exchange is in accordance with the provisions of the Agreement.

(e) The Purchaser represents that if it is an employee benefit plan or other retirement arrangement subject Section 406 of ERISA or Section 4975 of the Code or any federal, state, local, non-U.S. or other plan which is subject to substantially similar law (“Similar Law”), (collectively, a “Plan”) or a person acting on behalf of any such plan or a person using the assets of any such plan, the acquisition, holding and disposition of the Senior Note will not give rise to a non-exempt prohibited transaction under Section 406 of ERISA or Section 4975 of the Code because it will satisfy the requirements for exemptive relief under Prohibited Transaction Class Exemption (“PTCE”) 84-14, PTCE 90-1, PTCE 91-38, PTCE 95-60, PTCE 96-23 or the statutory exemption for nonfiduciary service providers under Section 408(b)(17) of ERISA or Section 4975(d)(20) of the Code or another applicable administrative or statutory exemption and in the case of a Plan subject to Similar Law, will not result in a non-exempt violation of such substantially similar law.

D-1-2

(f) The Purchaser has consulted with its own legal counsel, independent accountants and financial advisors to the extent it deems necessary regarding the tax consequences to it of ownership of the Notes, is aware that its taxable income with respect to the Notes in any accounting period may not correspond to the cash flow (if any) from the Notes for such period, and is not purchasing the Notes in reliance on any representations of the Seller or its counsel with respect to tax matters.

(g) The Purchaser understands that the Notes will bear a legend substantially as set forth in the Agreement.

(h) The Purchaser hereby further agrees to be bound by all the terms and conditions of the Notes as provided in the Agreement.

(i) If the Purchaser sells any of the Notes, the Purchaser will obtain from any subsequent purchaser substantially the same representations contained in this Investment Letter.

(j) The undersigned is a sophisticated institutional investor and has such knowledge and experience in financial and business matters and expertise in assessing financial risk, that it is capable of evaluating the merits, risks and suitability of investing in the Notes.

(k) The undersigned has conducted its own independent due diligence investigation of the Issuer, the Guarantor and the Notes, and is relying solely on its own diligence investigation, its own financial analysis, and whatever sources of information it has deemed appropriate, reliable and adequate, with respect to the Notes.

(l) The undersigned is able to bear the economic risks of and an entire loss of its investment in the Notes.

(m) The undersigned [has had the opportunity to consult] [has consulted] with such legal, financial and other advisers as it has deemed appropriate with respect to the Issuer, the Guarantor and the Notes and all related legal, financial, accounting and tax matters.

(n) The undersigned acknowledges that it has had the opportunity to ask questions of and receive answers from the Guarantor and the Issuer regarding the terms and conditions of the Notes and regarding the business, financial affairs and other aspects of the Guarantor and the Issuer, and further has had the opportunity to obtain all information (to the extent the Guarantor or the Issuer, as applicable, possesses or can acquire such information without unreasonable effort or expense) that it deems necessary to evaluate the investment and verify the accuracy of information otherwise provided to the undersigned.

(o) The undersigned acknowledges and agrees to be bound by the confidentiality provisions of Section 20 of the Senior Notes Note Purchase Agreement as if it was a “Note Purchaser” thereunder. [ONLY FOR PURCHASERS OF SENIOR NOTES OTHER THAN THE INITIAL REGISTERED OWNERS]

D-1-3

(p) Capitalized terms used herein that are not otherwise defined shall have the meanings ascribed thereto in the Agreement.

You are entitled to rely upon this letter and you are irrevocably authorized to produce this letter or a copy hereof to any interested party in any administrative or legal proceeding or official inquiry with respect to the matters covered hereby.

The representations and warranties contained herein shall be binding upon the successors of the undersigned.

Executed at                     , this     day of                     , 200    .

By:

Name: [Purchaser’s Name]

Title: [—]

Address: [—]

Taxpayer ID Number: [—]

D-1-4

EXHIBIT D-2

FORM OF INVESTMENT LETTER FOR SUBORDINATED NOTE

                     ,         

PEAKS Trust 2009-1, as Issuer

Deutsche Bank Trust Company Americas, as Secured Party

Deutsche Bank Trust Company Delaware, as Owner Trustee

Access Group, Inc., as Administrator

Re: PEAKS Trust 2009-1,

[Subordinated Note]

Ladies and Gentlemen:

The undersigned (the “Purchaser”) intends to purchase from [Name of current Registered Owner] the above referenced Note (the “Note”) issued by PEAKS Trust 2009-1 (the “Issuer”) pursuant to the Amended and Restated Indenture and Credit Agreement, dated as of December 31, 2010 (the “Agreement”), by and among the Issuer, Deutsche Bank Trust Company Americas, as indenture trustee (in such capacity, the “Indenture Trustee”) and as collateral agent (in such capacity, the “Collateral Agent” and in its capacities as Indenture Trustee and as Collateral Agent, the “Secured Party”) and Deutsche Bank National Trust Company, as lender trustee (the “Lender Trustee”). Capitalized terms used and not otherwise defined herein shall have the respective meanings ascribed to them in the Agreement.

THIS LETTER, OR A FACSIMILE COPY HEREOF, WILL BE DELIVERED TO THE ABOVE ADDRESSEES NO LATER THAN THE DATE OF PURCHASE.

In connection with the purchase of the Note, the undersigned, as an authorized officer or agent of the Purchaser and on behalf of the Purchaser hereby agrees to the following terms and conditions and makes the representations and warranties stated herein with the express understanding that the truth and accuracy of the representations and warranties will be relied upon by the Issuer, the Secured Party, the Owner Trustee and the Administrator:

1. The Purchaser is duly organized, validly existing and in good standing under the laws of the jurisdiction of its creation, and is authorized to purchase the Note and to execute this letter and any other instruments and documents required to be executed by the Purchaser in connection with the purchase of the Note. The person executing this Investment Letter on behalf of the Purchaser and making the certifications included herein is the chief financial officer, a person fulfilling an equivalent function, or other executive or authorized officer of the Purchaser and is duly authorized to do so on the Purchaser’s behalf.

D-2-1

2. The Purchaser qualifies as (i) an “accredited investor” as that term is defined under Rule 501(a)(1), (2), (3) or (7) of Regulation D promulgated under the Securities Act of 1933, as amended (the “Securities Act”), (ii) a “qualified institutional buyer” as that term is defined in Rule 144A promulgated under the Securities Act and (iii) a “qualified purchaser” as that term is defined in Section 2(a)(51)(A) of the Investment Company Act of 1940, as amended (the “Investment Company Act”), and related rules.

3. The Purchaser represents that it is purchasing the Note for its own account or for one or more separate accounts maintained by the Purchaser or for the account of one or more pension or trust funds and not with a view to the distribution thereof, provided that the disposition of such Purchaser’s or their property shall at all times be within the Purchaser’s or their control.

4. The Purchaser understands that the Note has not been registered under the Securities Act and may be resold only if registered pursuant to the provisions of the Securities Act or if an exemption from registration is available, except under circumstances where neither such registration nor such an exemption is required by law, and that the Issuer is not required to register the Note.

5. The Purchaser represents that it (a) is a sophisticated investor familiar with transactions similar to its investment in the Note, (b) understands that an investment in the Note involves certain risks, including the risk of loss of all or a substantial part of its investment under certain circumstances, (c) has such knowledge and experience in financial and business matters to be capable of evaluating the merits and risks of its investment in the Note and (d) is able to bear the economic risk of its investment. The Purchaser represents that it has had access to such financial and other information concerning the transaction as it has deemed necessary or appropriate in order to make an informed investment decision with respect to its acquisition of the Note. The Purchaser represents that it is not relying on the Issuer or any of its Affiliates for information with respect to the Note or any security therefor. The Purchaser has sought such accounting and tax advice as it has considered necessary.

6. The Purchaser understands that none of the Issuer, the Secured Party, the Owner Trustee or the Administrator makes any representation as to the proper characterization of the Note for legal investment or other purposes, or as to the ability of particular investors to purchase the Note for legal investment or other purposes, or as to the ability of particular investors to purchase the Note under applicable investment restrictions.

7. The Purchaser understands that it is the Issuer’s intention that the Note be treated as debt of the Issuer for federal income tax purposes, and by entering into the Subordinated Note Note Purchase Agreement, agrees to so treat the Note and to take no action inconsistent therewith.

8. The Purchaser represents that not it is an employee benefit plan or other retirement arrangement subject Section 406 of ERISA or section 4975 of the Code or any federal, state, local, non-U.S. or other plan which is subject to substantially similar law.

9. The interpretation of the provisions hereof shall be governed and construed in accordance with the laws of the State of New York without regard to principles of conflicts of laws.

D-2-2

10. The Purchaser agrees and acknowledges that its representations and warranties given hereunder are being relied upon by the addressees in order for any resale of a Note to qualify for the exemption provided by Section 3(c)(7) under the Investment Company Act, and the exemption provided by Section 4(2) and Rule 144A under the Securities Act, and the Purchaser shall be deemed to have reaffirmed the representations and warranties contained in this Investment Letter upon any purchase of an increased principal amount in any Note pursuant to the Agreement, and shall promptly inform the Issuer if any of the representations, warranties or covenants set forth herein are not true as of such date. The Purchaser shall provide notice to any transferees of the transfer restrictions applicable to the Note.

Very truly yours,

[NAME OF PURCHASER]

By

Name

Title

D-2-3

EXHIBIT E

FORM OF MONTHLY REPORTS

PEAKS Trust 2009-1
Monthly Servicing Report
	Report Date:		[    ]
	Collection Period:	[    ]	[    ]

I		Series 2009-1 Asset and Liability Summary
A.		Student Loan Sub-Account Portfolio and Fund Balance		[    ]			Change			[    ]
	1	Principal Balance	$	0.00		$	0.00		$	0.00
	2	Accrued Interest	$	0.00		$	0.00		$	0.00
	3	Total Principal And Accrued Interest Balance	$	0.00		$	0.00		$	0.00
	4	Fund Accounts Balance	$	0.00		$	0.00		$	0.00
	5	Total Student Loans And Fund Balance	$	0.00		$	0.00		$	0.00
B.		Student Loan Sub-Account Portfolio and Fund Balance		[    ]			Change			[    ]
	1	Weighted Average Coupon (WAC)		0.00	%		0.00	%		0.00	%
	2	Weighted Average Remaining Maturity (WARM) [includes in-school period]		0			0			0
	3	Number of Loans		0			0			0
	4	Number of Borrowers		0			0			0
									Trust Asset/ Liability Ratio			0.00%
D.		Accounts Balance		[    ]			Change			[    ]
	1	Reserve Account	$	0.00		$	0.00		$	0.00
	2	Total Associated Accounts Balance	$	0.00		$	0.00		$	0.00

E-1

PEAKS Trust 2009-1
Monthly Servicing Report
	Report Date:	[    ]
	Collection Period:	[    ]

II		Series 2009-1 Trust Sub-Account Transactions and Accruals
A.		Student Loan Cash Principal Activity		[    ]
	1	Borrower Payments	$	0.00
	2	Refunds	$	0.00
	3	New Acquisitions	$	0.00
	4	Hold	$	0.00
	5	Total Principal Collections	$	0.00
B.		Student Loan Non-Cash Principal Activity
	1	Capitalized Interest	$	0.00
	2	Hold	$	0.00
	3	Charge-offs	$	0.00
	4	Other Adjustments	$	0.00
	5	Total Non-Cash Principal Activity	$	0.00
C.		Total Student Loan Principal Activity	$	0.00
D.		Student Loan Cash Interest Activity			[    ]
	1	Borrower Payments	$	0.00
	2	Refunds	$	0.00
	3	New Acquisitions	$	0.00
	4	Hold	$	0.00
	5	Other Adjustments	$	0.00
	6	Total Interest Collections	$	0.00
E.		Student Loan Non-Cash Interest Activity
	1	Borrower Accruals	$	0.00
	2	Capitalized Interest	$	0.00
	3	Charge-offs	$	0.00
	4	Other Adjustments	$	0.00
	5	Total Non-Cash Interest Activity	$	0.00
F.		Total Student Loan Interest Activity	$	0.00

E-2

PEAKS Trust 2009-1
Monthly Servicing Report
	Report Date:	[    ]
	Collection Period:	[    ]

III.		Series 2009-1 Collection Account Activity
A.		Collection Fund		[	]
		Beginning Balance	$	0.00
		Transfers to Other Funds	$	0.00
	1a	Amount received in the collection account related to the collection period	$	0.00
	1b	Earnings	$	0.00
	1c	Recoveries	$	0.00
	2	Payments under the Guaranty Agreements	$	0.00
	3	Hold	$	0.00
	4	Hold	$	0.00
	5	Hold	$	0.00
		Ending Balance	$	0.00
			Estimated Due			Distribute from Collection			Transfer from Other Funds
B.		Estimated Required Payments Under Waterfall
	1a	Ordinary Administrative Expenses	$	0.00		$	0.00		$	0.00
	1b	Hold	$	0.00		$	0.00		$	0.00
	2	Hold	$	0.00		$	0.00		$	0.00
	3a	2009-1 Senior Credit Interest	$	0.00		$	0.00		$	0.00
	3b		$	0.00			[	]	$	0.00
	3c		$	0.00		$	0.00		$	0.00
	4a	2009-1 Credit Principal	$	0.00		$	0.00		$	0.00
	4b		$	0.00		$	0.00		$	0.00
	4c		$	0.00		$	0.00		$	0.00
	5	Hold	$	0.00		$	0.00		$	0.00
	6	Hold	$	0.00		$	0.00		$	0.00
	7	Hold	$	0.00		$	0.00		$	0.00
	8	Hold	$	0.00		$	0.00		$	0.00
	9	Hold	$	0.00		$	0.00		$	0.00
	10	Hold	$	0.00		$	0.00		$	0.00
	11	Hold	$	0.00		$	0.00		$	0.00
	12	Hold	$	0.00		$	0.00		$	0.00
	13	Remainder to Issuer	$	0.00		$	0.00		$	0.00
		Total Interest Collections	$	0.00		$	0.00		$	0.00

E-3

PEAKS Trust 2009-1
Monthly Servicing Report
	Report Date:		[    ]
	Collection Period:	[    ]	[    ]

IV.		Collection Account Credit Waterfall for Payments
													Remaining		CAPI
													Funds Balance		Account Balance Uses
A.		Total Available Funds (Collection Account)									$	0.00	$	0.00
B	First	Administrative Expenses									$	0.00	$	0.00	$	0.00
	Second	Hold									$	0.00	$	0.00	$	0.00
C	Third	Payment of Monthly Interest Amount on Senior Credit:
			Rate			Balance		Duration
				0.00	%	$	0.00		0 days		$	0.00	$	0.00	$	0.00
D	Fourth	Payment of Principal Payment Amount on Senior Credit:
											$	0.00	$	0.00	$	0.00
E	Fifth	Hold									$	0.00	$	0.00	$	0.00
F	Sixth	Hold									$	0.00	$	0.00	$	0.00
G	Seventh	Hold									$	0.00	$	0.00	$	0.00
									[	]
H	Eight	Hold									$	0.00	$	0.00	$	0.00
I	Ninth	Hold									$	0.00	$	0.00	$	0.00
J	Tenth	Hold									$	0.00	$	0.00	$	0.00
K	Eleventh	Hold									$	0.00	$	0.00	$	0.00
L	Twelfth	Hold									$	0.00	$	0.00	$	0.00
M	Thirteenth	Remainder to Issuer									$	0.00	$	0.00	$	0.00

E-4

PEAKS Trust 2009-1
Monthly Servicing Report
	Report Date:	[	]
	Collection Period:	[	]

V.		Series 2009-1 Asset Percentages
A.		2009-1 Trust Asset/Liability Ratio		[	]
	1	Student Loan Portfolio Balance (plus accrued and unpaid interest)	$	0.00
	2	Collection Account and Reserve Account Balances	$	0.00
	3	2009-1 Senior Credit Outstanding (plus accrued and unpaid interest)	$	0.00
	4	Acquisition Account Balance	$	0.00
	4	2009-1 Trust Asset/Liability Ratio		0.00	%

		Series 2009-1 Guarantor Triggers
			Trigger		Actual			Compliance
B.		Guarantor
	1	Debt:EBITDA (on-balance sheet)		>2.5:1.00		0.00:0.00		YES/NO
	2	Debt:EBITDA (on-balance sheet + off-balance sheet guarantees)		>3.5:1.01		0.00:0.00		YES/NO
	3	Cash/Cash Equivalents/Restricted Cash		<$100,000,000.00	$	0.00		YES/NO
	4	Cash/Cash Equivalents/Restricted Cash/ST Investments/Unused Revolving Credit Commitment		<$200,000,000.00	$	0.00		YES/NO
	5	Title IV Ineligible Schools		>25% of Guarantor Revenues		0.00	%	YES/NO

E-5

PEAKS Trust 2009-1
Monthly Servicing Report
	Report Date:	[    ]
	Collection Period:	[    ]	[    ]

VII.	Series 2009-1 Notes		Aggregated Acquisition Account Portfolio Status
	Status	# of Loans		Amount ($)		Percentage (%)
	INTERIM:			Includes Accrued Int.
A	In School
	Current		0	$	0		0.00	%
B	In Grace
	Current		0	$	0		0.00	%
C	TOTAL INTERIM		0	$	0		0.00	%
D	REPAYMENT:
	Active
	Current		0	$	0.00		0.00	%
	1-29 Days Delinquent		0	$	0.00		0.00	%
	30-59 Days Delinquent		0	$	0.00		0.00	%
	60-89 Days Delinquent		0	$	0.00		0.00	%
	90-119 Days Delinquent		0	$	0.00		0.00	%
	> 120 Days Delinquent		0	$	0.00		0.00	%
E	Deferment:
	Current		—	$	0.00		—
F	Forbearance:
	Current		0	$	0.00		0.00	%
G	TOTAL REPAYMENT		0	$	0.00		0.00	%
	Claims / Interim Charge-Offs		0	$	0.00		0.00	%
H	TOTAL Charge-offs		0	$	0.00		0.00	%
I	TOTAL PORTFOLIO (a)		0	$	0.00		0.00	%

E-6

PEAKS Trust 2009-1

School Trust Sub-Account Portfolio Trend Analysis Report

[    ]

IX		SERIES 2009-1
		Collection Periods	[    ]			October-09			November-09			December-09			January-09			February-10			March-10			April-10			May-10			June-10			July-10
		Reporting Date	[    ]			[    ]			[    ]			[    ]			[    ]			[    ]			[    ]			[    ]			[    ]			[    ]			[    ]
A	1	Series 2009-1 Senior Credit	$	0		$	0		$	0		$	0		$	0		$	0		$	0		$	0		$	0		$	0		$	0
B	1	Acquisition Account Principal Balance	$	0		$	0		$	0		$	0		$	0		$	0		$	0		$	0		$	0		$	0		$	0
	2	Reserve Account Balance	$	0		$	0		$	0		$	0		$	0		$	0		$	0		$	0		$	0		$	0		$	0
	3	Total Principal and Accrued Interest Balance	$	0		$	0		$	0		$	0		$	0		$	0		$	0		$	0		$	0		$	0		$	0
	4	Number of Loans in Account		0			0			0			0			0			0			0			0			0			0			0
	5	Number of Borrowers in Account		0			0			0			0			0			0			0			0			0			0			0
C	1	Borrower Payments- Principal	$	0		$	0		$	0		$	0		$	0		$	0		$	0		$	0		$	0		$	0		$	0
	2	Borrower Payments- Interest	$	0		$	0		$	0		$	0		$	0		$	0		$	0		$	0		$	0		$	0		$	0
D	1	Hold	$	0		$	0		$	0		$	0		$	0		$	0		$	0		$	0		$	0		$	0		$	0
	2	Ordinary Administrative Expenses	$	0		$	0		$	0		$	0		$	0		$	0		$	0		$	0		$	0		$	0		$	0
	3	Remainder to Issuer	$	0		$	0		$	0		$	0		$	0		$	0		$	0		$	0		$	0		$	0		$	0
E	1	Weighted Average Coupon (WAC)		0.00	%		0.00	%		0.00	%		0.00	%		0.00	%		0.00	%		0.00	%		0.00	%		0.00	%		0.00	%		0.00	%
	2	Weighted Average Remaining Maturity (WARM)		—			—			—			—			—			—			—			—			—			—			—
F	1	2009-1 Credit	$	0		$	0		$	0		$	0		$	0		$	0		$	0		$	0		$	0		$	0		$	0
	2	Hold	$	0		$	0		$	0		$	0		$	0		$	0		$	0		$	0		$	0		$	0		$	0
	3	Hold	$	0		$	0		$	0		$	0		$	0		$	0		$	0		$	0		$	0		$	0		$	0
	4	Parity		0.00	%		0.00	%		0.00	%		0.00	%		0.00	%		0.00	%		0.00	%		0.00	%		0.00	%		0.00	%		0.00	%
	5	Prepayments	$	0		$	0		$	0		$	0		$	0		$	0		$	0		$	0		$	0		$	0		$	0
	6	Defaults	$	0		$	0		$	0		$	0		$	0		$	0		$	0		$	0		$	0		$	0		$	0
	7	Recoveries	$	0		$	0		$	0		$	0		$	0		$	0		$	0		$	0		$	0		$	0		$	0
	8	Prepayments		0.00	%		0.00	%		0.00	%		0.00	%		0.00	%		0.00	%		0.00	%		0.00	%		0.00	%		0.00	%		0.00	%
	9	Defaults		0.00	%		0.00	%		0.00	%		0.00	%		0.00	%		0.00	%		0.00	%		0.00	%		0.00	%		0.00	%		0.00	%
	10	Recoveries		0.00	%		0.00	%		0.00	%		0.00	%		0.00	%		0.00	%		0.00	%		0.00	%		0.00	%		0.00	%		0.00	%

E-7

EXHIBIT F

FORM OF OFFICER’S CERTIFICATE OF THE SECURED PARTY

PURSUANT TO SECTION 2.11(n)

F-1

EX-10.49

EXHIBIT 10.49

Execution Version

PEAKS TRUST 2009-1

$95,937,703

(maximum outstanding amount)

Student Loan Asset-Backed Variable Funding Subordinated Note

SUBORDINATED NOTE PURCHASE AGREEMENT

Dated January 20, 2010

TABLE OF CONTENTS

SECTION	HEADING	PAGE
SECTION 1.	AUTHORIZATION OF NOTE	1
SECTION 2.	SALE AND PURCHASE OF NOTE; ADVANCES	2
Section 2.1.	Sale and Purchase of Note	2
Section 2.2.	Advances	2
Section 2.3.	Advance Procedures	2
Section 2.4.	Transfers of Note	3
SECTION 3.	CLOSING	3
SECTION 4.	CONDITIONS TO CLOSING	3
SECTION 5.	REPRESENTATIONS AND WARRANTIES OF THE ISSUER	3
Section 5.1.	Organization; Power and Authority	3
Section 5.2.	Authorization, Etc	4
Section 5.3.	[Reserved]	4
Section 5.4.	Subsidiaries	4
Section 5.5.	Material Liabilities	4
Section 5.6.	Compliance with Laws, Other Instruments, Etc	4
Section 5.7.	Governmental Authorizations, Etc	4
Section 5.8.	Litigation; Observance of Agreements, Statutes and Orders	4
Section 5.9.	Taxes	5
Section 5.10.	Title to Property; Leases	5
Section 5.11.	Licenses, Permits, Etc	5
SECTION 5.12.	ERISA PLANS	5
Section 5.13.	Private Offering by the Issuer	5
Section 5.14.	Use of Proceeds; Margin Regulations	6
Section 5.15.	Security Interest in Trust Estate; Future Liens	6
Section 5.16.	Foreign Assets Control Regulations, Etc	6
Section 5.17.	Status under Certain Statutes	7
Section 5.18.	Environmental Matters	7
SECTION 6.	REPRESENTATIONS OF THE NOTE PURCHASER	7
Section 6.1.	Purchase for Investment	7
Section 6.2.	ERISA	8
Section 6.3.	Due Diligence, etc.	8
Section 6.4.	Tax Treatment	8

SECTION 7.	INFORMATION AS TO ISSUER	9
Section 7.1.	Financial and Business Information	9
SECTION 8.	PAYMENT AND PREPAYMENT OF THE NOTE	10
SECTION 9.	AFFIRMATIVE COVENANTS	10
Section 9.1.	Compliance with Law	10
Section 9.2.	Insurance	11
Section 9.3.	Maintenance of Properties	11
Section 9.4.	Payment of Taxes and Claims	11
Section 9.5.	Corporate Existence, Etc.	11
Section 9.6.	Books and Records	11
SECTION 10.	NEGATIVE COVENANTS	11
Section 10.1.	Transactions with Affiliates	11
Section 10.2.	Merger, Consolidation, Etc	12
Section 10.3.	Line of Business	12
Section 10.4.	Terrorism Sanctions Regulations	12
SECTION 11.	RIGHTS OF CREDITORS	12
SECTION 12.	[RESERVED]	12
SECTION 13.	PAYMENTS, REGISTRATION; TRANSFER, EXCHANGE; SUBSTITUTION OF NOTE	12
SECTION 14.	[RESERVED]	12
SECTION 15.	EXPENSES, ETC	12
SECTION 16.	SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ENTIRE AGREEMENT	12
SECTION 17.	AMENDMENT AND WAIVER	13
Section 17.1.	Requirements	13
Section 17.2.	Solicitation of Holders of Note	13
Section 17.3.	Binding Effect, etc	13
SECTION 18.	NOTICES	13

-ii-

SECTION 19.	REPRODUCTION OF DOCUMENTS	15
SECTION 20.	CONFIDENTIAL INFORMATION	15
SECTION 21.	[RESERVED]	15
SECTION 22.	MISCELLANEOUS	15
Section 22.1.	Successors and Assigns	15
Section 22.2.	Third Party Beneficiaries	15
Section 22.3.	Accounting Terms	15
Section 22.4.	Severability	15
Section 22.5.	Construction, etc.	16
Section 22.6.	Counterparts	16
Section 22.7.	Governing Law	16
Section 22.8.	Jurisdiction and Process; Waiver of Jury Trial	16
Section 22.9.	Limited Recourse Obligations	17
Section 22.10.	No Proceedings	17
Section 22.11.	Limitation of Liability of Deutsche Bank Trust Company Delaware	17
Section 22.12.	Concerning the Administrator	17
Signature		19

-iii-

SCHEDULE A    —    INFORMATION RELATING TO NOTE PURCHASER

SCHEDULE B    —    DEFINED TERMS

-iv-

Student Loan Asset-Backed Variable Funding Subordinated Note

January 20, 2010

To: ITT Educational Services, Inc.

13000 North Meridian Street

Carmel, IN 46032

Ladies and Gentlemen:

PEAKS TRUST 2009-1, a Delaware statutory trust (the “Issuer”), agrees with ITT Educational Services, Inc., a Delaware corporation (the “Note Purchaser”) as follows:

SECTION 1. AUTHORIZATION OF NOTE.

Pursuant to the Indenture and Credit Agreement dated as of January 20, 2010 among the Issuer, Deutsche Bank National Trust Company, as the lender trustee (the “Lender Trustee”) and Deutsche Bank Trust Company Americas, as the indenture trustee and as collateral agent (the “Secured Party”) (as amended, supplemented, restated or otherwise modified from time to time in accordance with the terms thereof, the “Indenture and Credit Agreement”), the Issuer has authorized the issuance and sale of a Student Loan Asset-Backed Variable Funding Subordinate Note (the “Note”) having a maximum principal amount of $95,937,703 (the “Maximum Outstanding Amount”). Pursuant to the Indenture and Credit Agreement, the Issuer will also provide for (i) the issuance of Student Loan Asset-Backed Senior Notes (the “Senior Notes”) and (ii) the terms of a loan (the “Loan” and together with the Senior Notes, the “Senior Credit” and the Senior Credit, together with the Note, the “Credit”) to be made by a lender to the Issuer, as borrower. The Credit will be secured by the Trust Estate established pursuant to the Indenture and Credit Agreement. The Note will be in all respects junior in priority to the Senior Credit.

The Issuer will issue the Note in favor of the Note Purchaser and, in consideration thereof, the Note Purchaser will make advances from time to time (each, an “Advance”) pursuant to the Note. Each such Advance will at all times be evidenced by the Note and will result in an increase in the Outstanding Amount of the Note by the amount of such Advance. The Outstanding Amount of the Note at any time shall not exceed the Maximum Outstanding Amount.

The Issuer has been established pursuant to a trust agreement dated as of December 23, 2009, as amended and restated on the date hereof (as further amended, supplemented, restated or otherwise modified from time to time in accordance with the terms thereof, the “Trust Agreement”) between Access Group, Inc. as depositor (in such capacity, the “Depositor”) and Deutsche Bank Trust Company Delaware, as owner trustee (the “Owner Trustee”), for the purpose of purchasing and holding private education loans (such student loans, the “Eligible

Loans”) made to certain students enrolled in and certain graduates of, schools owned and operated by ITT Educational Services, Inc. (the “Guarantor”). The student loans will be initially serviced by Access Group, Inc. (in such capacity, the “Servicer”) pursuant to the terms and provisions of an Agreement for Servicing Private Student Loans, dated as of the date hereof (the “Servicing Agreement”), among the Issuer, the Secured Party, the Guarantor and the Servicer. Access Group, Inc., as administrator (in such capacity, the “Administrator”), will perform certain administrative tasks on behalf of the Issuer pursuant to an Administration Agreement, dated as of the date hereof (as amended and supplemented from time to time, the “Administration Agreement”), among the Issuer, the Secured Party, the Guarantor and the Administrator.

The Guarantor has entered into a Guarantee Agreement (the “Guarantee Agreement”) on the date hereof with the Secured Party pursuant to which the Guarantor has guaranteed certain payment obligations of the Issuer in respect of the Senior Credit.

Certain capitalized and other terms used in this Agreement are defined in Schedule B hereto. Terms used herein but not defined herein or in Schedule B hereto shall have the meanings ascribed to such terms in the Indenture and Credit Agreement. References to a “Schedule” or an “Exhibit” are, unless otherwise specified, to a Schedule or an Exhibit attached to this Agreement.

SECTION 2. SALE AND PURCHASE OF NOTE; ADVANCES.

Section 2.1. Sale and Purchase of Note. Subject to the terms and conditions of this Agreement and the Indenture and Credit Agreement, the Issuer shall, pursuant to the Indenture and Credit Agreement, issue and cause the Secured Party to authenticate and deliver the Note to the Note Purchaser on the Closing Date. In consideration of the foregoing, the Note Purchaser agrees to make the Advances on the Note on the conditions set forth herein and in the Indenture and Credit Agreement.

Section 2.2. Advances. Upon the Issuer’s request, delivered in accordance with the provisions of Section 2.3, and the satisfaction of all conditions precedent thereto, subject to the terms and conditions of this Agreement and the Indenture and Credit Agreement, the Note Purchaser shall make Advances on the Note from time to time during the Transfer Period; provided that no Advance shall be required to be made by the Note Purchaser on a proposed Advance Date if (a) after giving effect to such Advance, the aggregate Outstanding Amount of the Note would exceed the Maximum Outstanding Amount; or (b) the Originating Lender does not make the related disbursement to the Note Purchaser’s account in accordance with clause (B) of Section 4(c)(i) of the Loan Purchase Agreement.

Section 2.3. Advance Procedures. On each day Eligible Loans are disbursed by the Originating Lender pursuant to the Loan Purchase Agreement, the Note Purchaser shall make an Advance in an amount equal to 28% of the aggregate amount of disbursements on the Eligible Loans made on such day. Any such Advance will be deemed made by the Note Purchaser upon delivery of amounts by the Originating Lender to the Secured Party pursuant to clause (B) of Section 4(c)(i) of the Loan Purchase Agreement in the amount of the required Advance.

-2-

Section 2.4. Transfers of Note. The Note Purchaser acknowledges that (i) the Note or any Notes may only be transferred in accordance with the provisions of the Indenture and Credit Agreement and (ii) the Note Purchaser may not transfer the Note until the expiration of the Transfer Period.

SECTION 3. CLOSING.

The delivery of the Note to the Note Purchaser shall occur at the offices of Bingham McCutchen LLP, One Battery Park Plaza, New York, NY 10004, at 11:00 a.m., New York City time, at a closing (the “Closing”) on January 20, 2010 or on such other Business Day thereafter as may be reasonably agreed upon by the Issuer and the Note Purchaser. At the Closing, the Issuer will deliver the Note to the Note Purchaser in the form of a single Note dated the date of the Closing and registered in the name of the Note Purchaser, against execution and delivery by the Note Purchaser of this Agreement. If at the Closing the Issuer shall fail to tender the Note to the Note Purchaser as provided above in this Section 3, the Note Purchaser shall, at its election, be relieved of all further obligations under this Agreement, without thereby waiving any rights the Note Purchaser may have by reason of such failure or such nonfulfillment.

SECTION 4. CONDITIONS TO CLOSING.

The Note Purchaser’s entry into this Agreement at the Closing is subject to (i) the execution and delivery of the Senior Notes Note Purchase Agreement and the Loan Agreement with respect to Senior Credit with an aggregate Senior Credit Balance of $300,000,000, the purchase of and payment for the Senior Notes by their purchasers and the funding of the Loan to the Issuer by the Lender and (ii) the satisfaction or waiver of the conditions to closing set forth in Section 4 of the Senior Notes Note Purchase Agreement and the Loan Agreement; provided that in the event that any of such conditions to closing are waived, such waiver (as evidenced by the purchase of the Senior Notes and the making of the Loan, respectively) shall not materially adversely affect the Note Purchaser.

SECTION 5. REPRESENTATIONS AND WARRANTIES OF THE ISSUER.

The Issuer represents and warrants to the Note Purchaser that:

Section 5.1. Organization; Power and Authority. The Issuer is a statutory trust duly organized, validly existing and in good standing under the laws of the State of Delaware, and is duly qualified as a foreign statutory trust and is in good standing in each jurisdiction in which such qualification is required by law, other than those jurisdictions as to which the failure to be so qualified or in good standing could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. The Issuer has the power and authority to own the properties it purports to own, to transact the business it transacts and proposes to transact, to execute and deliver this Agreement, the other Basic Documents to which it is a party and the Note and to perform the provisions hereof and thereof.

-3-

Section 5.2. Authorization, Etc. This Agreement, the other Basic Documents to which it is a party and the Note have been duly authorized by all necessary action on the part of the Issuer, and each of this Agreement and the other Basic Documents to which it is a party constitutes, and upon execution and delivery thereof, the Note will constitute, a legal, valid and binding obligation of the Issuer enforceable against the Issuer in accordance with its terms, except as such enforceability may be limited by (i) applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting the enforcement of creditors’ rights generally and (ii) general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law and including, without limitation, matters relating to jurisdiction and service of process).

Section 5.3. [Reserved].

Section 5.4. Subsidiaries. The Issuer has no Subsidiaries and, so long as the Note is outstanding, the Issuer shall not establish any Subsidiaries.

Section 5.5. Material Liabilities. The Issuer does not have any Material liabilities outside of those specifically permitted by the Indenture and Credit Agreement and the other Basic Documents.

Section 5.6. Compliance with Laws, Other Instruments, Etc. The execution, delivery and performance by the Issuer of this Agreement, the other Basic Documents to which it is a party and the Note will not (i) contravene, result in any breach of, or constitute a default under, or result in the creation of any Lien (other than pursuant to the Basic Documents) in respect of any property of the Issuer under, any indenture, mortgage, deed of trust, loan, purchase or credit agreement, lease, certificate of formation, trust agreement, or any other agreement or instrument to which the Issuer is bound or by which the Issuer or any of its properties may be bound or affected, (ii) conflict with or result in a breach of any of the terms, conditions or provisions of any order, judgment, decree, or ruling of any court, arbitrator or Governmental Authority applicable to the Issuer or (iii) violate any provision of any statute or other rule or regulation of any Governmental Authority applicable to the Issuer.

Section 5.7. Governmental Authorizations, Etc. No consent, approval or authorization of, or registration, filing or declaration with, any Governmental Authority is required in connection with the execution, delivery or performance by the Issuer of this Agreement, the other Basic Documents to which it is a party or the Note.

Section 5.8. Litigation; Observance of Agreements, Statutes and Orders. (a) There are no actions, suits, investigations or proceedings pending or, to the knowledge of the Issuer, threatened against or affecting the Issuer or any property of the Issuer in any court or before any arbitrator of any kind or before or by any Governmental Authority that, individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect.

(b) The Issuer is not in default under any term of any agreement or instrument to which it is a party or by which it is bound, or any order, judgment, decree or ruling of any court, arbitrator or Governmental Authority and is not in violation of any applicable law, ordinance,

-4-

rule or regulation (including without limitation Environmental Laws or the USA Patriot Act) of any Governmental Authority, which default or violation, individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect.

Section 5.9. Taxes. The Issuer has filed all tax returns, if any, that are required to have been filed in any jurisdiction, and has paid all taxes, if any, shown to be due and payable on such returns and all other taxes and assessments levied upon it or its properties, assets, income or franchises, to the extent such taxes and assessments have become due and payable and before they have become delinquent, except for any taxes and assessments (i) the amount of which is not individually or in the aggregate Material or (ii) the amount, applicability or validity of which is currently being contested in good faith by appropriate proceedings and with respect to which the Issuer has established adequate reserves in accordance with GAAP. The Issuer knows of no basis for any other tax or assessment that could reasonably be expected to have a Material Adverse Effect. The charges, accruals and reserves, if any, on the books of the Issuer in respect of Federal, state or other taxes for all fiscal periods are adequate. The Issuer is currently a disregarded entity for purposes of the Code.

Section 5.10. Title to Property; Leases. The Issuer and the Lender Trustee have good and sufficient title to the Trust Estate free and clear of Liens that are prohibited by this Agreement and the Indenture and Credit Agreement. The Issuer currently has no leased property and, other than the Trust Estate established pursuant to the Indenture and Credit Agreement, contract rights under the Basic Documents and any capital contributed to the Issuer by the Depositor, the Issuer has no other property.

Section 5.11. Licenses, Permits, Etc. (a) The Issuer owns or possesses all licenses, permits, franchises, authorizations, patents, copyrights, proprietary software, service marks, trademarks and trade names, or rights thereto, if any, that individually or in the aggregate are Material, without known conflict with the rights of others.

(b) To the best knowledge of the Issuer, no product of the Issuer, if any, infringes in any material respect any license, permit, franchise, authorization, patent, copyright, proprietary software, service mark, trademark, trade name or other right owned by any other Person.

(c) To the best knowledge of the Issuer, there is no Material violation by any Person of any right of the Issuer with respect to any patent, copyright, proprietary software, service mark, trademark, trade name or other right owned or used by the Issuer.

Section 5.12. ERISA Plans The Issuer does not have any employees and does not maintain, nor has it ever maintained, any Plans.

Section 5.13. Private Offering by the Issuer. Neither the Issuer nor anyone acting on its behalf has taken, or will take, any action that would subject the issuance or sale of the Note to the Note Purchaser to the registration requirements of Section 5 of the Securities Act or to the registration requirements of any securities or blue sky laws of any applicable jurisdiction.

-5-

Section 5.14. Use of Proceeds; Margin Regulations. The proceeds of the sale of the Note will be deposited by the Issuer into the Acquisition Account. Amounts on deposit in the Acquisition Account will be applied as set forth in the Basic Documents. No part of the proceeds from the sale of the Note hereunder will be used, directly or indirectly, for the purpose of buying or carrying any margin stock within the meaning of Regulation U of the Board of Governors of the Federal Reserve System (12 CFR 221), or for the purpose of buying or carrying or trading in any securities under such circumstances as to involve the Issuer in a violation of Regulation X of said Board (12 CFR 224) or to involve any broker or dealer in a violation of Regulation T of said Board (12 CFR 220). Margin stock does not constitute any of the value of the consolidated assets of the Issuer and the Issuer does not have any present intention that margin stock will constitute any of the value of such assets. As used in this Section, the terms “margin stock” and “purpose of buying or carrying” shall have the meanings assigned to them in said Regulation U.

Section 5.15. Security Interest in Trust Estate; Future Liens. (a) The security interest in the Trust Estate in favor of the Secured Party shall have priority over any other security interest in the Trust Estate. In the event that the transactions contemplated by the Loan Purchase Agreement are not construed to be sales of Financed Loans and Participation Interests to the Trust and the Lender Trustee, the security interest in the Financed Loans and Participation Interests purported to be sold thereunder in favor of the Trust and the Lender Trustee shall have priority over any other security interest in such Financed Loans and Participation Interests.

(b) Upon consummation of the transactions contemplated by the Basic Documents, the Credit constitutes the only outstanding indebtedness of the Issuer and, other than indebtedness incurred on the Subordinated Note as a result of Subordinated Note Advances, the Issuer shall not incur any indebtedness for borrowed money other than the indebtedness of the Senior Credit issued on the Closing Date. No event or condition exists that would constitute (or that with notice or the lapse of time, or both, would constitute) an Event of Default under the Indenture and Credit Agreement.

(c) Except as permitted by the Indenture and Credit Agreement, the Issuer has not agreed or consented to cause or permit in the future (upon the happening of a contingency or otherwise) any of its property, whether now owned or hereafter acquired, to be subject to a Lien.

Section 5.16. Foreign Assets Control Regulations, Etc. (a) Neither the sale of the Note by the Issuer hereunder nor the use of the proceeds thereof will violate the Trading with the Enemy Act, as amended, or any of the foreign assets control regulations of the United States Treasury Department (31 CFR, Subtitle B, Chapter V, as amended) or any enabling legislation or executive order relating thereto.

(b) The Issuer (i) is not a Person described or designated in the Specially Designated Nationals and Blocked Persons List of the Office of Foreign Assets Control or in Section 1 of the Anti-Terrorism Order and (ii) does not engage in any dealings or transactions with any such Person. The Issuer is in compliance, in all material respects, with the USA Patriot Act.

-6-

(c) No part of the proceeds from the sale of the Notes hereunder will be used, directly or indirectly, for any payments to any governmental official or employee, political party, official of a political party, candidate for political office, or anyone else acting in an official capacity, in order to obtain, retain or direct business or obtain any improper advantage, in violation of the United States Foreign Corrupt Practices Act of 1977, as amended, assuming in all cases that such Act applies to the Issuer.

Section 5.17. Status under Certain Statutes. The Issuer is not subject to regulation under the Investment Company Act of 1940, as amended, the Public Utility Holding Company Act of 2005, as amended, the ICC Termination Act of 1995, as amended, or the Federal Power Act, as amended.

Section 5.18. Environmental Matters. (a) The Issuer has no knowledge of any claim and has not received any notice of any claim, and no proceeding has been instituted raising any claim against the Issuer or any of its real properties now or formerly owned, leased or operated in the name of or under the control of the Issuer or other assets, alleging any damage to the environment or violation of any Environmental Laws, except, in each case, such as could not reasonably be expected to result in a Material Adverse Effect.

(b) The Issuer has no knowledge of any facts which would give rise to any claim, public or private, of violation of Environmental Laws or damage to the environment emanating from, occurring on or in any way related to real properties now or formerly owned, leased or operated in the name of or under the control of the Issuer or to other assets or their use, except, in each case, such as could not reasonably be expected to result in a Material Adverse Effect.

(c) The Issuer has not stored any Hazardous Materials on real properties now or formerly owned, leased or operated in the name of or under the control of the Issuer and has not disposed of any Hazardous Materials in a manner contrary to any Environmental Laws in each case in any manner that could reasonably be expected to result in a Material Adverse Effect; and

(d) All buildings on all real properties now owned, leased or operated in the name of or under the control of the Issuer are in compliance with applicable Environmental Laws, except where failure to comply could not reasonably be expected to result in a Material Adverse Effect.

SECTION 6. REPRESENTATIONS OF THE NOTE PURCHASER.

Section 6.1. Purchase for Investment; Status of Note Purchaser. The Note Purchaser represents and warrants that it is purchasing the Note for its own account and not with a view to the distribution thereof, provided that the disposition of the Note Purchaser’s property shall at all times be within the Note Purchaser’s control. The Note Purchaser understands that the Note has not been registered under the Securities Act or any other applicable securities or “blue sky” laws of any state or other jurisdiction and may be resold only pursuant to an exemption from registration under the Securities Act and such other securities laws and in accordance with the provisions of the Indenture and Credit Agreement. The Note Purchaser represents and warrants that it is an Institutional Accredited Investor or a Qualified Institutional Buyer. On or prior to the Closing Date, the Note Purchaser agrees to deliver to the Issuer and the Secured Party the Investment Letter in the form set forth in Exhibit D-2 to the Indenture and Credit Agreement.

-7-

Section 6.2. ERISA. The Note Purchaser represents and warrants that either (i) it is not an employee benefit plan or other retirement arrangement subject to Section 406 of ERISA or Section 4975 of the Code or any federal, state, local, non-U.S. or other plan which is subject to substantially similar law (“Similar Law”), (collectively, a “Plan”) or a Person acting on behalf of any such Plan or a Person using the assets of any such Plan or (ii) the acquisition, holding and disposition of the Note will not give rise to a non-exempt prohibited transaction under Section 406 of ERISA or Section 4975 of the Code because it will satisfy the requirements for exemptive relief under Prohibited Transaction Class Exemption (“PTCE”) 84-14, PTCE 90-1, PTCE 91-38, PTCE 95-60, PTCE 96-23 or the statutory exemption for nonfiduciary service providers under Section 408(b)(17) of ERISA or Section 4975(d)(20) of the Code or another applicable administrative or statutory exemption and in the case of a Plan subject to Similar Law, will not result in a non-exempt violation of such substantially similar law.

Section 6.3. Due Diligence, etc.. The Note Purchaser represents and warrants that it (a) is a sophisticated investor familiar with transactions similar to its investment in the Note, (b) understands that an investment in the Note involves certain risks, including the risk of loss of all or a substantial part of its investment under certain circumstances, (c) has such knowledge and experience in financial and business matters to be capable of evaluating the merits and risks of its investment in the Note and (d) is able to bear the economic risk of its investment. The Note Purchaser represents and warrants that it has had access to such financial and other information concerning the transaction and the Issuer as it has deemed necessary or appropriate in order to make an informed investment decision with respect to its acquisition of the Note. The Note Purchaser represents and warrants that it is not relying on the Issuer or any of its Affiliates for information with respect to the Note or any security therefor. The Note Purchaser has sought such accounting and tax advice in connection with its investment in the Note as it has considered necessary. The Note Purchaser understands that none of the Issuer, the Secured Party, the Owner Trustee or the Administrator makes any representation or warranty as to the proper characterization of the Note for legal investment or other purposes, or as to the ability of particular investors to purchase the Note for legal investment or other purposes, or as to the ability of particular investors to purchase the Note under applicable investment restrictions.

Section 6.4. Tax Treatment. The Note Purchaser understands that it is the Issuer’s intention that the Note be treated as debt for federal, state, and local income and franchise tax purposes, and by its acceptance of the Note, agrees to so treat the Note as a debt instrument and to take no action inconsistent therewith. The Note Purchaser agrees, so long as there is a single owner of the Issuer, to treat the Issuer as disregarded as an entity separate from the Depositor for the purpose of federal and state income tax, franchise tax and any other tax measured in whole or in part by income. If at any time the Depositor or any successor Certificateholder is not the sole equity owner, the Note Purchaser agrees to treat the Issuer as a partnership for the purpose of federal and state income tax, franchise tax and any other tax measured in whole or in part by income.

-8-

SECTION 7. INFORMATION AS TO ISSUER.

Section 7.1. Financial and Business Information. The Issuer shall deliver, or direct the Secured Party to deliver, to each holder of Notes:

(a) Payment Date Certificate — not later than the Business Day preceding each Payment Date (as defined in the Indenture and Credit Agreement), a Payment Date Certificate in the form attached as Exhibit C to the Indenture and Credit Agreement.

(b) Monthly Report — within 15 days after each Payment Date, a report in the form attached as Exhibit E to the Indenture and Credit Agreement.

(c) Compliance Certificate — not more than five Business Days after receipt by the Secured Party from the Issuer (which receipt by the Secured Party shall be within 120 days after the end of each fiscal year of the Issuer), the compliance certificate required by Section 4.14 of the Indenture and Credit Agreement, and the Issuer shall cause the Secured Party to agree to make such delivery to the holder of the Note.

(d) Notice of Default or Event of Default — promptly, and in any event within five days after a Responsible Officer becoming aware of the existence of any Default or Event of Default or that any Person has given any notice or taken any action with respect to a claimed default hereunder or that any Person has given any notice or taken any action with respect to a claimed default, a written notice specifying the nature and period of existence thereof and what action the Issuer is taking or proposes to take with respect thereto;

(e) ERISA Matters — promptly, and in any event within five days after a Responsible Officer becoming aware of any of the following, a written notice setting forth the nature thereof and the action, if any, that the Issuer proposes to take with respect thereto:

(i) with respect to any Plan, any reportable event, as defined in section 4043(c) of ERISA and the regulations thereunder, for which notice thereof has not been waived pursuant to such regulations as in effect on the date hereof; or

(ii) the taking by the PBGC of steps to institute, or the threatening by the PBGC of the institution of, proceedings under section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Plan, or the receipt by the Issuer of a notice from a Multi-employer Plan that such action has been taken by the PBGC with respect to such Multi-employer Plan; or

(iii) any event, transaction or condition that could result in the incurrence of any liability by the Issuer pursuant to Title I or IV of ERISA or the penalty or excise tax provisions of the Code relating to employee benefit plans, or in the imposition of any Lien on any of the rights, properties or assets of the

-9-

Issuer pursuant to Title I or IV of ERISA or such penalty or excise tax provisions, if such liability or Lien, taken together with any other such liabilities or Liens then existing, could reasonably be expected to have a Material Adverse Effect;

(f) Notices from Governmental Authority — promptly, and in any event within 30 days of receipt thereof, copies of any notice to the Issuer from any Federal or state Governmental Authority relating to any order, ruling, statute or other law or regulation that could reasonably be expected to have a Material Adverse Effect;

(g) Notices, Waivers, Amendments and Opinions under the Basic Documents — promptly, any notices, other than routine periodic notices, investment instructions and information summarized in the monthly report provided pursuant to Section 7.1(b), given by the Issuer to or received from the Secured Party or the Administrator pursuant to the Indenture and Credit Agreement or any other Basic Document, any waivers provided with respect to the Basic Documents, copies of any amendments to the Basic Documents and copies of any opinions delivered in connection with such amendments; and

(h) Requested Information — with reasonable promptness, such other data and information relating to the business, operations, affairs, financial condition, assets or properties of the Issuer or relating to the ability of the Issuer to perform its obligations hereunder, under the other Basic Documents to which it is a party and under the Note as from time to time may be reasonably requested by any such holder of the Note; provided, however, that the Issuer is not required to provide, or cause to be provided, information which is specific to the Student Loans that is not otherwise provided in the monthly report delivered pursuant to Section 7.1(b) above.

SECTION 8. TERMS OF THE NOTE.

The Note shall have the terms (including with respect to payment of principal and interest), rights and remedies as provided in the Indenture and Credit Agreement.

SECTION 9. AFFIRMATIVE COVENANTS.

The Issuer covenants that so long as the Note is outstanding:

Section 9.1. Compliance with Law. Without limiting Section 10.4, the Issuer will comply with all laws, ordinances or governmental rules or regulations to which it is subject, including, without limitation, ERISA, the USA Patriot Act and Environmental Laws, and will obtain and maintain in effect all licenses, certificates, permits, franchises and other governmental authorizations, if any, necessary to the ownership of its properties or to the conduct of its businesses, in each case to the extent necessary to ensure that non-compliance with such laws, ordinances or governmental rules or regulations or failures to obtain or maintain in effect such licenses, certificates, permits, franchises and other governmental authorizations could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.

-10-

Section 9.2. Insurance. The Issuer has no property other than as described in Section 5.10 of this Agreement and the Issuer does not presently carry or intend to carry any insurance.

Section 9.3. Maintenance of Properties. The Issuer will maintain and keep, or cause to be maintained and kept, properties, if any, in good repair, working order and condition (other than ordinary wear and tear), so that the business carried on in connection therewith may be properly conducted at all times, provided that this Section shall not prevent the Issuer from discontinuing the operation and the maintenance of any of its properties if such discontinuance is desirable in the conduct of its business and the Issuer has concluded that such discontinuance could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.

Section 9.4. Payment of Taxes and Claims. The Issuer will file all tax returns required to be filed in any jurisdiction and to pay and discharge all taxes shown to be due and payable on such returns and all other taxes, assessments, governmental charges, or levies imposed on it or any of its properties, assets, income or franchises, to the extent the same have become due and payable and before they have become delinquent and all claims for which sums have become due and payable that have or might become a Lien on properties or assets of the Issuer, provided that the Issuer need not pay any such tax, assessment, charge, levy or claim if (i) the amount, applicability or validity thereof is contested by the Issuer on a timely basis in good faith and in appropriate proceedings, and the Issuer has established adequate reserves therefor in accordance with GAAP on the books of the Issuer or (ii) the nonpayment of all such taxes, assessments, charges, levies and claims in the aggregate could not reasonably be expected to have a Material Adverse Effect. The Issuer is currently a disregarded entity for purposes of the Code.

Section 9.5. Existence, Etc. The Issuer will at all times preserve and keep in full force and effect its existence as a Delaware statutory trust. The Issuer will at all times preserve and keep in full force and effect all rights and franchises of the Issuer unless, in the good faith judgment of the Issuer, the termination of or failure to preserve and keep in full force and effect such existence, right or franchise could not, individually or in the aggregate, have a Material Adverse Effect.

Section 9.6. Books and Records. The Issuer will maintain proper books of record and account in conformity with GAAP and all applicable requirements of any Governmental Authority having legal or regulatory jurisdiction over the Issuer.

SECTION 10. NEGATIVE COVENANTS.

The Issuer covenants that so long as the Note is outstanding:

Section 10.1. Transactions with Affiliates. Except as provided in the Indenture and Credit Agreement and the other Basic Documents, the Issuer will not enter into directly or indirectly any transaction or group of related transactions (including without limitation the purchase, lease, sale or exchange of properties of any kind or the rendering of any service) with any Affiliate, except in the ordinary course and pursuant to the reasonable requirements of the Issuer’s business and upon fair and reasonable terms no less favorable to the Issuer than would be obtainable in a comparable arm’s-length transaction with a Person not an Affiliate.

-11-

Section 10.2. Merger, Consolidation, Etc. The Issuer will not consolidate with or merge with any other Person or convey, transfer or lease all or substantially all of its assets in a single transaction or series of transactions to any Person.

Section 10.3. Line of Business. The Issuer will not engage in any business if, as a result, the general nature of the business in which the Issuer would then be engaged would be substantially changed from the general nature of the business in which the Issuer is engaged on the date of this Agreement.

Section 10.4. Terrorism Sanctions Regulations. The Issuer will not (a) become a Person described or designated in the Specially Designated Nationals and Blocked Persons List of the Office of Foreign Assets Control or in Section 1 of the Anti-Terrorism Order or (b) engage in any dealings or transactions with any such Person, provided that no Creditor is such a Person.

SECTION 11. RIGHTS OF CREDITORS.

The Note Purchaser acknowledges and agrees that (i) the Issuer’s payment obligations in respect of the Note under this Agreement and the Indenture and Credit Agreement will be subordinate in all respects to the Issuer’s payment obligations in respect of the Senior Credit and (ii) so long as the Senior Credit is the Priority Class Credit under the Indenture and Credit Agreement, the Registered Owner of the Note may not exercise any rights granted to the Priority Class Creditors under the Indenture and Credit Agreement.

SECTION 12. [RESERVED].

SECTION 13. PAYMENTS, REGISTRATION; TRANSFER, EXCHANGE; SUBSTITUTION OF NOTE.

Payment, registration, transfer, exchange and substitution of the Note shall be in accordance with the Indenture and Credit Agreement.

SECTION 14. [RESERVED].

SECTION 15. [RESERVED].

SECTION 16. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ENTIRE AGREEMENT.

All representations and warranties of the Issuer and the Note Purchaser contained herein shall survive the execution and delivery of this Agreement, the other Basic Documents to which it is a party and the Note, the purchase or transfer by the Note Purchaser of any Note and the payment of the Note, and may be relied upon by any subsequent holder of the Note, regardless of any investigation made at any time by or on behalf of the Note Purchaser or any other holder of

-12-

the Note. All representations and warranties of the Issuer and the Note Purchaser contained in any certificate or other instrument delivered by or on behalf of the Issuer or the Note Purchaser pursuant to this Agreement shall be deemed representations and warranties of the Issuer or the Note Purchaser under this Agreement. Subject to the preceding sentence, this Agreement, the other Basic Documents and the Note embody the entire agreement and understanding between the Note Purchaser and the Issuer and supersede all prior agreements and understandings relating to the subject matter hereof.

SECTION 17. AMENDMENT AND WAIVER.

Section 17.1. Requirements. This Agreement may be amended, and the observance of any term may be waived (either retroactively or prospectively), with (and only with) the written consent of the Issuer and the Note Purchaser.

Section 17.2. Solicitation of Holders of Note. The Issuer will provide, or cause to be provided to, the holder of the Note (irrespective of the amount of the Note then owned by it) with sufficient information, sufficiently far in advance of the date a decision is required, to enable such holder to make an informed and considered decision with respect to any proposed amendment, waiver or consent in respect of any of the provisions hereof, of the other Basic Documents or of the Note. The Issuer will deliver, or cause to be delivered and executed true and correct copies of each amendment, waiver or consent effected pursuant to the provisions of this Section 17 to the holder of the Note promptly following the date on which it is executed and delivered by, or receives the consent or approval of, the holder of the Note.

Section 17.3. Binding Effect, etc. Any amendment or waiver consented to as provided in this Section 17 is binding upon the holder of the Note and upon each future holder of the Note and upon the Issuer without regard to whether the Note has been marked to indicate such amendment or waiver. No such amendment or waiver will extend to or affect any obligation, covenant, agreement, Default or Event of Default not expressly amended or waived or impair any right consequent thereon. No course of dealing between the Issuer and the holder of the Note nor any delay in exercising any rights hereunder or under the Note shall operate as a waiver of any rights of the holder of the Note. As used herein, the term “this Agreement” and references thereto shall mean this Agreement as it may from time to time be amended or supplemented.

SECTION 18. NOTICES.

All notices and communications provided for hereunder shall be in writing and sent (a) by telecopy if the sender on the same day sends a confirming copy of such notice by a recognized overnight delivery service (charges prepaid), (b) by registered or certified mail with return receipt requested (postage prepaid), (c) by a recognized overnight delivery service (with charges prepaid) or (d) with respect to the reports set forth in Sections 7.1(a) and (b) by e-mail followed by a confirming copy by regular mail (postage prepaid). Any such notice must be sent:

(i) if to the Note Purchaser or its nominee, to the Note Purchaser or nominee at the address specified for such communications in Schedule A, or at such other address as the Note Purchaser or nominee shall have specified to the Issuer (with a copy to the Secured Party as provided below requesting that the Secured Party update such address of the Note Purchaser on the note register maintained by the Secured Party) in writing,

-13-

(ii) if to any other holder of the Note, to such holder at such address as such other holder shall have specified to the Issuer (with a copy to the Secured Party as provided below requesting that the Secured Party update such address of the holder on the note register maintained by the Secured Party) in writing, or

(iii) if to the Issuer, to the Issuer at the following address, or at such other address as the Issuer shall have specified to the holder of each Note in writing:

PEAKS Trust 2009-1

c/o Deutsche Bank Trust Company Delaware

1011 Centre Road, Suite 200

Wilmington, Delaware 19805

Attention: Elizabeth B. Ferry

Telephone: (302) 636-3392

Facsimile: (302) 636-3399

with a copy to the Secured Party

Deutsche Bank Trust Company Americas

c/o Deutsche Bank National Trust Company

100 Plaza One

Jersey City, NJ 07311-3901

Attention: Susan Barstock

Telephone: (201) 593-8421

Facsimile: (212) 553-2458

and a copy to the Administrator:

Access Group, Inc.

P.O. Box 7430

5500 Brandywine Parkway

Wilmington, Delaware 19803

Attention: Vice President-Portfolio Management

Telephone: (302) 477-4071

Facsimile: (302) 477-4032

Notices under this Section 18 will be deemed given only when actually received. Notices under this Section 18 delivered via email will be deemed given upon actual receipt of the applicable email.

-14-

SECTION 19. REPRODUCTION OF DOCUMENTS.

This Agreement and all documents relating hereto, including, without limitation, (a) consents, waivers and modifications that may hereafter be executed, (b) documents received by the Note Purchaser at the Closing (except the Note itself), and (c) financial statements, certificates and other information previously or hereafter furnished to the Note Purchaser, may be reproduced by the Note Purchaser by any photographic, photostatic, electronic, digital, or other similar process and the Note Purchaser may destroy any original document so reproduced. The Issuer agrees and stipulates that, to the extent permitted by applicable law, any such reproduction shall be admissible in evidence as the original itself in any judicial or administrative proceeding (whether or not the original is in existence and whether or not such reproduction was made by the Note Purchaser in the regular course of business) and any enlargement, facsimile or further reproduction of such reproduction shall likewise be admissible in evidence. This Section 19 shall not prohibit the Issuer or any other holder of the Note from contesting any such reproduction to the same extent that it could contest the original, or from introducing evidence to demonstrate the inaccuracy of any such reproduction.

SECTION 20. [RESERVED].

SECTION 21. [RESERVED].

SECTION 22. MISCELLANEOUS.

Section 22.1. Successors and Assigns. All covenants and other agreements contained in this Agreement by or on behalf of any of the parties hereto bind and inure to the benefit of their respective successors and assigns (including, without limitation, any subsequent holder of the Note) whether so expressed or not. The Note Purchaser hereunder may, without the consent of the Issuer, assign its rights, title, interests and obligations in this Agreement with respect to the Note to any subsequent purchaser of the Note, and such subsequent purchaser shall thereafter have all of the rights, title, interests and obligations of the Note Purchaser with respect to the Note as if such subsequent purchaser was an original party to this Agreement and had purchased the Note directly from the Issuer; provided that the Note was transferred in accordance with this Agreement and the Indenture and Credit Agreement.

Section 22.2. Third Party Beneficiaries. Access Group, Inc., as Administrator, shall be express third-party beneficiaries of this Agreement entitled to the rights and benefits hereunder and may enforce the provisions hereof as if it were a party hereto.

Section 22.3. Accounting Terms. All accounting terms used herein which are not expressly defined in this Agreement have the meanings respectively given to them in accordance with GAAP. Except as otherwise specifically provided herein, (i) all computations made pursuant to this Agreement shall be made in accordance with GAAP, and (ii) all financial statements shall be prepared in accordance with GAAP.

Section 22.4. Severability. Any provision of this Agreement that is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall (to the full extent permitted by law) not invalidate or render unenforceable such provision in any other jurisdiction.

-15-

Section 22.5. Construction, etc. Each covenant contained herein shall be construed (absent express provision to the contrary) as being independent of each other covenant contained herein, so that compliance with any one covenant shall not (absent such an express contrary provision) be deemed to excuse compliance with any other covenant. Where any provision herein refers to action to be taken by any Person, or which such Person is prohibited from taking, such provision shall be applicable whether such action is taken directly or indirectly by such Person.

For the avoidance of doubt, all Schedules and Exhibits attached to this Agreement shall be a part hereof.

Section 22.6. Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be an original but all of which together shall constitute one instrument. Each counterpart may consist of a number of copies hereof, each signed by less than all, but together signed by all, of the parties hereto.

Section 22.7. Governing Law. This Agreement shall be construed and enforced in accordance with, and the rights of the parties shall be governed by, the law of the State of New York excluding choice-of-law principles of the law of such State that would permit the application of the laws of a jurisdiction other than such State.

Section 22.8. Jurisdiction and Process; Waiver of Jury Trial. (a) The Issuer irrevocably submits to the non-exclusive jurisdiction of any New York State or federal court sitting in the Borough of Manhattan, The City of New York, over any suit, action or proceeding arising out of or relating to this Agreement, the Indenture and Credit Agreement or the Note. To the fullest extent permitted by applicable law, the Issuer irrevocably waives and agrees not to assert, by way of motion, as a defense or otherwise, any claim that it is not subject to the jurisdiction of any such court, any objection that it may now or hereafter have to the laying of the venue of any such suit, action or proceeding brought in any such court and any claim that any such suit, action or proceeding brought in any such court has been brought in an inconvenient forum.

(b) The Issuer consents to process being served by or on behalf of the holder of the Note in any suit, action or proceeding of the nature referred to in Section 22.8(a) by mailing a copy thereof by registered or certified mail (or any substantially similar form of mail), postage prepaid, return receipt requested, to it at its address specified in Section 18 or at such other address of which such holder shall then have been notified pursuant to said Section. The Issuer agrees that such service upon receipt (i) shall be deemed in every respect effective service of process upon it in any such suit, action or proceeding and (ii) shall, to the fullest extent permitted by applicable law, be taken and held to be valid personal service upon and personal delivery to it. Notices hereunder shall be conclusively presumed received as evidenced by a delivery receipt furnished by the United States Postal Service or any reputable commercial delivery service.

(c) Nothing in this Section 22.8 shall affect the right of the holder of the Note to serve process in any manner permitted by law, or limit any right that the holder of the Note may have to bring proceedings against the Issuer in the courts of any appropriate jurisdiction or to enforce in any lawful manner a judgment obtained in one jurisdiction in any other jurisdiction.

-16-

(d) The parties hereto hereby waive trial by jury in any action brought on or with respect to this Agreement, the Indenture and Credit Agreement, the Note or any other document executed in connection herewith or therewith.

Section 22.9. Limited Recourse Obligations. Notwithstanding any provision in any other Section of this Agreement to the contrary, the Note Purchaser hereby acknowledges and agrees that the Issuer’s payment obligations under this Agreement shall be limited to the extent of funds available for payment of the foregoing amounts under the Indenture and Credit Agreement. Any amount which the Issuer does not pay hereunder pursuant to the operation of the preceding sentence shall not constitute a claim (as defined in Section 101 of the United States Bankruptcy Code) against the Issuer until such time as funds do become so available to the Issuer to pay such amount and such amount is not paid promptly thereafter.

Section 22.10. No Proceedings. The Note Purchaser hereby agrees that it will not institute against, or join any other Person in instituting against, the Issuer any bankruptcy, reorganization, arrangement, insolvency or liquidation proceeding under any federal or state bankruptcy or similar law for one year and a day after the Final Maturity Date of the Note.

Section 22.11. Limitation of Liability of Deutsche Bank Trust Company Delaware. Notwithstanding anything contained herein to the contrary, (a) this Agreement has been executed by Deutsche Bank Trust Company Delaware, not in its individual or personal capacity but solely in its capacity as owner trustee for the Issuer in the exercise of the powers and authority conferred and vested in it as owner trustee under the Trust Agreement, subject to the protections, indemnities and limitations from liability afforded to the Owner Trustee thereunder; (b) the representations, warranties, covenants, undertakings, agreements and obligations by the Issuer are made and intended not as personal representations, warranties, covenants, undertakings, agreements and obligations by the Owner Trustee, but are made and intended for the purpose of only binding the Issuer; (c) nothing contained herein shall be construed as creating any liability on the Owner Trustee, individually or personally, to perform any expressed or implied covenant, duty or obligation of the Issuer of any kind whatsoever contained herein; and (d) under no circumstances shall the Owner Trustee be personally liable for the payment of any fees, costs, indebtedness or expenses of any kind whatsoever or be personally liable for the breach or failure of any obligation, representation, agreement, warranty or covenant whatsoever made or undertaken by the Issuer hereunder and (e) in no event shall Deutsche Bank Trust Company Delaware in its individual capacity or any beneficial owner of the Issuer have any liability for the representations, warranties, covenants, agreements or other obligations of the Issuer hereunder as to all of which recourse shall be had solely to the assets of the Issuer.

Section 22.12. Concerning the Administrator. It is expressly understood and agreed by the parties to this Agreement that (a) in the exercise of the powers and authority conferred and vested in it as Administrator under the Administration Agreement, and subject to the protections and limitations from liability afforded to the Administrator thereunder, Access Group, Inc. is acting solely in its capacity as Administrator on behalf of the Issuer and not in its individual or

-17-

personal capacity; (b) the representations, warranties, certifications, covenants, undertakings, agreements and obligations by Access Group, Inc. herein and in the certificates delivered pursuant hereto are made and intended not as personal representations, warranties, covenants, undertakings, agreements and obligations by Access Group, Inc., but are made and intended for the purpose of only binding the Trust Estate and the Issuer; and (c) except as provided in the Administration Agreement, nothing contained herein shall be construed as creating any liability on Access Group, Inc., individually or personally, to perform any expressed or implied covenant, duty or obligation of any kind whatsoever contained herein.

*    *    *    *    *

-18-

If you are in agreement with the foregoing, please sign the form of agreement on a counterpart of this Agreement and return it to the Issuer, whereupon this Agreement shall become a binding agreement between you and the Issuer.

Very truly yours,
PEAKS TRUST 2009-1
By: DEUTSCHE BANK TRUST COMPANY DELAWARE, not in its individual capacity or personal capacity but solely in its capacity as Owner Trustee
By	/s/ Susan Barstock
Name	Susan Barstock
Title	Attorney in Fact
By	/s/ Mark DiGiacomo
Name	Mark DiGiacomo
Title	Attorney in Fact

This Agreement is hereby

accepted and agreed to as

of the date thereof.

ITT EDUCATIONAL SERVICES, INC.

By	/s/ Kevin M. Modany
Name	Kevin M. Modany
Title	Chairman and CEO

-19-

SCHEDULE A

PEAKS TRUST 2009-1

C/O DEUTSCHE BANK TRUST COMPANY DELAWARE

1011 CENTRE ROAD, SUITE 200

WILMINGTON, DELAWARE 19805

INFORMATION RELATING TO NOTE PURCHASER

NAME AND ADDRESS OF NOTE PURCHASER

ITT Educational Services, Inc.

13000 North Meridian Street

Carmel, IN 46032

(1) All payments by wire transfer of immediately available funds to:

ITT Educational Services, Inc.

Bank: JPMorgan

Acct#: 705001304003

Routing#: 074000010

with sufficient information to identify the source and application of such funds.

(2) All notices of payments and written confirmations of such wire transfers:

ITT Educational Services, Inc.

Attn: Controller

13000 North Meridian Street

Carmel, IN 46032

(3) E-mail address for delivery of reports pursuant to Section 7.1(a) and (b):

mhuber@ittesi.com

gwallis@ittesi.com

(4) All other communications:

ITT Educational Services, Inc.

13000 North Meridian Street

Carmel, IN 46032-1404

(5) Tax Identification Number: 36-2061311

SCHEDULE B

DEFINED TERMS

As used in the Note Purchase Agreement, the following terms have the respective meanings set forth below.

“Advance” means an increase in the aggregate Outstanding Amount of the Note in accordance with the provisions of Section 1.

“Advance Date” means the date on which an Advance occurs, which must be a Business Day.

“Affiliate” means, at any time, and with respect to any Person, any other Person that at such time directly or indirectly through one or more intermediaries Controls, or is Controlled by, or is under common Control with, such first Person, and, with respect to the Issuer, shall include any Person beneficially owning or holding, directly or indirectly, 10% or more of any class of voting or equity interests of the Issuer or any corporation of which the Issuer beneficially owns or holds, in the aggregate, directly or indirectly, 10% or more of any class of voting or equity interests. As used in this definition, “Control” means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract or otherwise. Unless the context otherwise clearly requires, any reference to an “Affiliate” is a reference to an Affiliate of the Issuer.

“Anti-Terrorism Order” means Executive Order No. 13,224 of September 24, 2001, Blocking Property and Prohibiting Transactions with Persons Who Commit, Threaten to Commit or Support Terrorism, 66 U.S. Fed. Reg. 49, 079 (2001), as amended.

“Capital Lease” means, at any time, a lease with respect to which the lessee is required concurrently to recognize the acquisition of an asset and the incurrence of a liability in accordance with GAAP.

“Code” means the Internal Revenue Code of 1986, as amended from time to time, and the rules and regulations promulgated thereunder from time to time.

“Default” means an event or condition the occurrence or existence of which would, with the lapse of time or the giving of notice or both, become an Event of Default.

“Environmental Laws” means any and all Federal, state, local, and foreign statutes, laws, regulations, ordinances, rules, judgments, orders, decrees, permits, concessions, grants, franchises, licenses, agreements or governmental restrictions relating to pollution and the protection of the environment or the release of any materials into the environment, including but not limited to those related to Hazardous Materials.

“ERISA” means the Employee Retirement Income Security Act of 1974, as amended from time to time, and the rules and regulations promulgated thereunder from time to time in effect.

“GAAP” means generally accepted accounting principles as in effect from time to time in the United States of America.

“Governmental Authority” means

(a) the government of

(i) the United States of America or any State or other political subdivision thereof, or

(ii) any other jurisdiction in which the Issuer conducts all or any part of its business, or which asserts jurisdiction over any properties of the Issuer, or

(b) any entity exercising executive, legislative, judicial, regulatory or administrative functions of, or pertaining to, any such government.

“Hazardous Material” means any and all pollutants, toxic or hazardous wastes or other substances that might pose a hazard to health and safety, the removal of which may be required or the generation, manufacture, refining, production, processing, treatment, storage, handling, transportation, transfer, use, disposal, release, discharge, spillage, seepage or filtration of which is or shall be restricted, prohibited or penalized by any applicable law including, but not limited to, asbestos, urea formaldehyde foam insulation, polychlorinated biphenyls, petroleum, petroleum products, lead based paint, radon gas or similar restricted, prohibited or penalized substances.

“holder” means, with respect to any Note, the Person in whose name such Note is registered in the Credit Register.

“Institutional Accredited Investor” means any Person who is an “accredited investor” within the meaning of Rule 501(a)(1), (2), (3) or (7) of Regulation D promulgated under the Securities Act.

“Investment Company Act” means the Investment Company Act of 1940, as amended from time to time, and the rules and regulations promulgated thereunder from time to time in effect.

“Lien” means, with respect to any Person, any mortgage, lien, pledge, charge, security interest or other encumbrance, or any interest or title of any vendor, lessor, lender or other secured party to or of such Person under any conditional sale or other title retention agreement or Capital Lease, upon or with respect to any property or asset of such Person (including in the case of stock, stockholder agreements, voting trust agreements and all similar arrangements).

B-2

“Material” means material in relation to the business, operations, affairs, financial condition, assets, properties, or prospects of the Issuer.

“Material Adverse Effect” means a Material adverse effect on (a) the business, operations, affairs, financial condition, assets or properties of the Issuer, or (b) the ability of the Issuer to perform its obligations under this Agreement, the Indenture and Credit Agreement and the Note, or (c) the validity or enforceability of this Agreement, the Indenture and Credit Agreement or the Note.

“Maximum Outstanding Amount” means $95,937,703.

“Multi-employer Plan” means any Plan that is a “multiemployer plan” (as such term is defined in section 4001(a)(3) of ERISA).

“NAIC” means the National Association of Insurance Commissioners or any successor thereto.

“Officer’s Certificate” means a certificate of an officer of Access Group, Inc., the administrator of the Issuer, whose responsibilities extend to the subject matter of such certificate.

“PBGC” means the Pension Benefit Guaranty Corporation referred to and defined in ERISA or any successor thereto.

“Person” means an individual, partnership, corporation, limited liability company, association, trust, unincorporated organization, business entity or Governmental Authority.

“Plan” means an “employee benefit plan” (as defined in section 3(3) of ERISA) subject to Title I of ERISA that is or, within the preceding five years, has been established or maintained, or to which contributions are or, within the preceding five years, have been made or required to be made, by the Issuer or with respect to which the Issuer may have any liability.

“Program” means the student loan program relating to schools owned and operated by the Guarantor pursuant to which the Financed Loans were originated.

“property” or “properties” means, unless otherwise specifically limited, real or personal property of any kind, tangible or intangible, choate or inchoate.

“Qualified Institutional Buyer” means any Person who is a “qualified institutional buyer” within the meaning of such term as set forth in Rule 144A(a)(1) under the Securities Act.

B-3

“Responsible Officer” means any officer of Access Group, Inc., the administrator of the Issuer, with responsibility for the administration of the relevant portion of this Agreement and the Indenture and Credit Agreement.

“SEC” shall mean the Securities and Exchange Commission of the United States, or any successor thereto.

“Securities” or “Security” shall have the meaning specified in Section 2(1) of the Securities Act.

“Securities Act” means the Securities Act of 1933, as amended from time to time, and the rules and regulations promulgated thereunder from time to time in effect.

“Subsidiary” means, as to any Person, any other Person in which such first Person or one or more of its Subsidiaries or such first Person and one or more of its Subsidiaries owns sufficient equity or voting interests to enable it or them (as a group) ordinarily, in the absence of contingencies, to elect a majority of the directors (or Persons performing similar functions) of such second Person, and any partnership or joint venture if more than a 50% interest in the profits or capital thereof is owned by such first Person or one or more of its Subsidiaries or such first Person and one or more of its Subsidiaries (unless such partnership or joint venture can and does ordinarily take major business actions without the prior approval of such Person or one or more of its Subsidiaries).

“SVO” means the Securities Valuation Office of the NAIC or any successor to such Office.

“USA Patriot Act” means United States Public Law 107-56, Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism (USA PATRIOT) Act of 2001, as amended from time to time, and the rules and regulations promulgated thereunder from time to time in effect.

B-4

EX-10.50

EXHIBIT 10.50

AGREEMENT FOR SERVICING PRIVATE STUDENT LOANS

By and Among

PEAKS TRUST 2009-1,

DEUTSCHE BANK TRUST COMPANY AMERICAS, as indenture trustee and collateral agent,

ITT EDUCATIONAL SERVICES, INC.,

and

FIRST ASSOCIATES LOAN SERVICING, LLC

DATED AS OF DECEMBER 10, 2011

TABLE OF CONTENTS

		Page
ARTICLE I DEFINITIONS			2
Section 1.01.	Definitions		2
Section 1.02.	Definitions of General Terms		5
ARTICLE II PROVISION OF SERVICES			6
Section 2.01.	Loans Covered by this Agreement		6
Section 2.02.	Services		6
Section 2.03.	Servicing Reports		6
Section 2.04.	Manner of Performance of Services		7
Section 2.05.	Safekeeping of Loan Documents		7
Section 2.06.	Examination of Records		7
Section 2.07.	Appointment as Agent		8
Section 2.08.	Reports and Audits Relating to the Servicer		8
Section 2.09.	Additional Information and Actions		8
ARTICLE III COMPENSATION			8
Section 3.01.	Amount of Compensation		8
Section 3.02.	Statements		9
Section 3.03.	Due Dates for Payments		9
ARTICLE IV REPRESENTATIONS AND WARRANTIES			10
Section 4.01.	Representations and Warranties of the Servicer		10
Section 4.02.	Representations and Warranties of the Trust		10
Section 4.03.	Representations and Warranties of Secured Party		10
Section 4.04.	Representations and Warranties of the Guarantor		10
Section 4.05.	Mutual Representations and Warranties		10
ARTICLE V TERM AND TERMINATION			11
Section 5.01.	Term of Agreement		11
Section 5.02.	Termination		11
Section 5.03.	Termination with Respect to Specific Loans		12
Section 5.04.	Impossibility of Performance; Disaster Recovery Plan		12
Section 5.05.	Deconversion Services		13
Section 5.06.	Forwarding of Payments		13
ARTICLE VI MISCELLANEOUS			13
Section 6.01.	Limited Agency Powers		13
Section 6.02.	Confidentiality; Trade Secrets and Proprietary Information		13
Section 6.03.	Amendments; Entire Agreement; Prior Agreements		15
Section 6.04.	Assignment and Subcontracting		15
Section 6.05.	Indemnity		16
Section 6.06.	Insurance		18

-i-

Section 6.07.	Governing Law	19
Section 6.08.	Notices	19
Section 6.09.	Severability	20
Section 6.10.	Survival	21
Section 6.11.	Waiver of Rights	21
Section 6.12.	Cumulative Remedies	21
Section 6.13.	Certain References Ineffective After Transfer or Discharge	21
Section 6.14.	Headings	21
Section 6.15.	Execution in Counterparts	22
Section 6.16.	Certain Activities in U.S. Only	22
Section 6.17.	Bankruptcy Non-Petition	22
SCHEDULE A FEE SCHEDULE		A-1
SCHEDULE B SERVICES		B-1
SCHEDULE C REPORTS		C-1
SCHEDULE D DECONVERSION SERVICES		D-1
SCHEDULE E PROGRAM GUIDELINES		E-1
SCHEDULE F TERMINATION CRITERIA		F-1

-ii-

Agreement for Servicing Private Student Loans

This Agreement for Servicing Private Student Loans is made and entered into as of December 10, 2011, by and among First Associates Loan Servicing, LLC, a Delaware limited liability company (the “Servicer”), PEAKS Trust 2009-1, a Delaware statutory trust (the “Trust”), ITT Educational Services, Inc., a Delaware corporation (the “Guarantor”), and Deutsche Bank Trust Company Americas, in its capacity as indenture trustee and collateral agent under the Indenture and Credit Agreement referred to herein (the “Secured Party”).

RECITALS:

A. The Trust has been established pursuant to an Amended and Restated Trust Agreement dated as of January 20, 2010 (the “Trust Agreement”) for the purpose of purchasing and holding beneficial ownership of student loans (“Student Loans”) made by Liberty Bank, N.A. (the “Originating Lender”) to students attending post-secondary educational institutions operated by the Guarantor (each, a “School”).

B. The Trust, as beneficial owner of the Student Loans, is responsible for providing for the servicing and collection of the Student Loans.

C. The Trust, Deutsche Bank National Trust Company, as lender trustee, and the Secured Party have entered into an Amended and Restated Indenture and Credit Agreement, dated December 31, 2010 (the “Indenture”), which provides for the issuance by the Trust of its notes and for the Trust to obtain a loan, which notes and loan are secured by the Student Loans and certain of which are guaranteed by the Guarantor.

D. The Trust, the Secured Party, the Guarantor and Access Group, Inc. were parties to an Agreement for Servicing Private Student Loans dated as of January 20, 2010 which previously provided for the servicing of Student Loans and has been terminated as of the date hereof.

E At the direction of the Servicing and Collections Advisor and with the consent of the Voting Party (as such terms are defined in the Indenture), the Servicer has been selected as successor servicer for the Student Loans.

F. Subject to the terms and conditions set forth in this Agreement, the Servicer will provide servicing and collection services for Student Loans while they are held by the Trust, and thereafter while they are held by a purchaser from or assignee of the Trust and/or the Lender Trustee.

AGREEMENT:

In consideration of the foregoing premises and the mutual covenants contained herein, and of other good and valuable consideration, the receipt of which is hereby acknowledged, the parties agree as follows:

ARTICLE I

DEFINITIONS

Section 1.01. Definitions

The following terms as used in this Agreement (including the preamble of this Agreement) shall have the following meanings unless the context clearly indicates otherwise:

(A) “Administration Agreement” means the Administration Agreement, dated as of January 20, 2010, among Access Group, Inc., the Trust, the Guarantor, the Owner Trustee, and the Secured Party, as supplemented and amended from time to time pursuant to the terms thereof.

(B) “Agreement” means this Agreement for Servicing Private Student Loans, including Schedules A through F hereto which are made a part hereof, as supplemented and amended from time to time in accordance with the provisions hereof.

(C) “Applicable Laws” means the State and Federal consumer lending and collection laws and other laws applicable to the Services, to the extent the same apply to the servicing and collection of loans made by a national bank to competent adult individuals (including such loans that have been transferred to another entity), including, without limitation, the Equal Credit Opportunity Act, the Fair Credit Reporting Act, the Fair Debt Collection Practices Act, the Gramm-Leach-Bliley Act, the Truth-in-Lending Act, the Higher Education Opportunity Act, the Federal Trade Commission Act, the USA PATRIOT Act, and any regulations implementing such statutes (including, without limitation, the FTC Red Flag Rules).

(D) “Borrower” means an individual who borrows funds through a Student Loan.

(E) “Business Day” means a day of the year other than a Saturday, a Sunday or a day on which banks located in New York, New York are required or authorized by law to remain closed.

(F) “Customer Information” means nonpublic information relating to Borrowers or co-signers of Serviced Loans, including without limitation names, addresses, telephone numbers, e-mail addresses, credit information, account numbers, social security numbers, loan balances or other account information, and lists derived there from.

(G) “Deconversion Services” means those services to be provided by the Servicer pursuant to Schedule D hereto.

-2-

(H) “Defaulted Loan” means a Serviced Loan with respect to which (1) any required payment becomes more than 180 days delinquent (without regard to whether such payment is later made), or (2) the Servicer is notified that the Borrower is deceased.

(I) “Examiner” has the meaning assigned thereto in Section 2.06(A) hereof.

(J) “Forbearance Period” means a period permitted by the Program Guidelines during which a Borrower (in Repayment) is permitted to temporarily forego payments or make reduced payments on the Borrower’s Student Loan.

(K) “Indenture” means the Amended and Restated Indenture and Credit Agreement, dated as of December 31, 2010, among the Trust, the Lender Trustee and the Secured Party, as supplemented and amended from time to time pursuant to the terms thereof.

(L) “Interim Period” means the period from the disbursement of a Serviced Loan to the commencement of Repayment.

(M) “Lender Trustee” means Deutsche Bank National Trust Company, in its capacity as trustee under the Lender Trustee Agreement, dated as of January 20, 2010, between the Trust and the Lender Trustee.

(N) “Note” means the authoritative electronic copy of an electronically signed application and loan agreement evidencing a Student Loan.

(O) “Originating Lender” means Liberty Bank N.A., a national banking association, which makes or has made the Student Loans.

(P) “Owner Trustee” means Deutsche Bank Trust Company Delaware, in its capacity as trustee under the Trust Agreement, and its successors and assigns in such capacity.

(Q) “Program” means the PEAKS private student loan program under which the Originating Lender makes or has made loans to students for costs of attendance at the Schools.

(R) “Program Guidelines” means the guidelines for origination, servicing and administration of the Student Loans attached hereto as Schedule E, as amended by agreement of the parties hereto.

(S) “Program Loan Origination Agreement” means the Private Education Loan Origination and Sale Agreement, dated as of January 20, 2010, by and among the Originating Lender, the Lender Trustee, the Guarantor, Access Group, Inc. (in its capacity as origination agent) and the Trust, as amended by the First Amendment thereto dated as of December 31, 2010 and the Second Amendment thereto dated as of February 8, 2011 and as supplemented by the Approval of Documents and Procedures pursuant thereto dated as of February 11, 2010 and as further supplemented and amended from time to time pursuant to the terms thereof.

-3-

(T) “Program Requirements” means the applicable provisions and requirements of the Note, the Program Guidelines and any Applicable Laws.

(U) “Repayment” or “Repayment Period” means the period of time during which a Borrower is required under his or her Note to make installment payments to repay the aggregate principal amount of, plus accrued interest on, the Borrower’s Student Loan.

(V) “Repayment Schedule” means the schedule of loan payments established prior to the commencement of the Repayment Period with respect to a Student Loan, which schedule sets out the amount and timing of installments necessary to pay such Student Loan in full within the applicable Repayment Period.

(W) “School” means an institution of higher education owned and operated by the Guarantor.

(X) “Secured Party” means Deutsche Bank Trust Company Americas, in its capacities as indenture trustee and collateral agent under the Indenture, and its successors and assigns in such capacities.

(Y) “Serviced Loan” means any of the Student Loans identified in Section 2.01 hereof, except for those Student Loans with respect to which this Agreement has been terminated as provided in Section 5.03.

(Z) “Servicer” means First Associates Loan Servicing, LLC, a Delaware limited liability company, and its successors and permitted assigns.

(AA) “Servicer Default” means the occurrence and continuance of any of the following events with respect to Serviced Loans:

(1) any failure by the Servicer to deliver to the Secured Party any payment required hereunder, which failure continues unremedied for three Business Days after the date on which written notice of such failure, requiring the same to be remedied, shall have been given to the Servicer by the Secured Party;

(2) any failure by the Servicer to observe or to perform in any material respect any covenant or agreement of the Servicer set forth in this Agreement, which failure shall continue unremedied for a period of 30 days after the earlier of (a) the date on which written notice of such failure, requiring the same to be remedied, shall have been given to the Servicer by the Voting Party or (b) the date on which an officer of the Servicer responsible for servicing operations becomes aware of the failure to observe or perform such covenant or agreement;

(3) (i) the filing of a decree or order by a court having jurisdiction in the premises with respect to the Servicer or any substantial part of its property (a) for relief in an involuntary case under any applicable federal or state bankruptcy, insolvency or other similar law now or hereafter in effect, (b) appointing a receiver, liquidator, assignee, custodian, trustee, sequestrator or similar official for the Servicer or for any substantial part of its property, or (c) ordering the winding-up or liquidation of the Servicer’s affairs,

-4-

and such decree or order shall remain undismissed, unstayed and in effect for a period of 60 consecutive days, or (ii) the commencement by the Servicer of a voluntary case under any applicable federal or state bankruptcy, insolvency or other similar law now or hereafter in effect, or the consent by the Servicer to the entry of an order for relief in an involuntary case under any such law, or (iii) the consent by the Servicer to the appointment of or taking possession by a receiver, liquidator, assignee, custodian, trustee, sequestrator or similar official for the Servicer or for any substantial part of its property, or the making by the Servicer of any general assignment for the benefit of creditors, or (iv) the failure by the Servicer generally to pay its debts as such debts become due, or (v) the taking of action by the Servicer in furtherance of any of the foregoing.

(BB) “Services” means those services to be provided by the Servicer pursuant to Sections 2.02 and 5.03(A) hereof.

(CC) “Servicing and Collections Advisor” shall mean the party identified as such in, or such party’s successor appointed pursuant to, the Indenture.

(DD) “Servicing Reports” means those reports to be provided to the Trust, the Secured Party and the Guarantor by the Servicer pursuant to Section 2.03 hereof.

(EE) “Student Loan” means a student loan made by the Originating Lender under the Program to finance or refinance a portion of a Borrower’s costs of attending a School.

(FF) “Trust” means the PEAKS Trust 2009-1, a Delaware statutory trust established pursuant to the Trust Agreement.

(GG) “Trust Agreement” means the Amended and Restated Trust Agreement, dated as of January 20, 2010, between Access Group, Inc., as depositor, and the Owner Trustee, as supplemented and amended from time to time pursuant to the terms thereof.

(HH) “Voting Party” means (1) while the Indenture remains in effect, (a) the Guarantor, unless and until the Servicer receives notice from the Secured Party that the Guarantor is no longer the Voting Party under the Indenture, and (b) after receipt by the Servicer of the notice described in clause (a), the Secured Party, and (2) after the discharge of the Indenture, the Trust.

Section 1.02. Definitions of General Terms

Unless the context clearly indicates otherwise, or may otherwise require, in this Agreement the terms “herein”, “hereunder”, “hereby”, “hereto”, “hereof” and any similar terms refer to this Agreement as a whole and not to any particular article, section or subsection thereof.

Unless the context clearly indicates otherwise, or may otherwise require, in this Agreement (i) references to articles, sections and other subsections, whether by number, letter or otherwise, are to the respective or corresponding articles, sections or subsections of this Agreement as such articles, sections or subsections may be amended from time to time; (ii) references to chapters, subchapters and sections of any public law or statute of the United States are to the respective or corresponding chapters, subchapters and sections as they may be

-5-

amended from time to time; and (iii) the word “heretofore” means before the date of execution of this Agreement, the word “now” means at the date of execution of this Agreement, and the word “hereafter” means after the date of execution of this Agreement.

ARTICLE II

PROVISION OF SERVICES

Section 2.01. Loans Covered by this Agreement

The Trust hereby agrees to deliver to the Servicer for servicing hereunder, and the Servicer agrees to provide the Services for, all Student Loans acquired or held by the Trust.

Section 2.02. Services

(A) The Servicer shall service, administer and make collections on the Serviced Loans in accordance with the terms hereof. The Servicer shall provide the services described in Schedule B hereto with respect to Serviced Loans.

(B) In performing the Services, the Servicer shall exercise commercially reasonable care and diligence and shall comply with the Program Requirements in all material respects.

(C) The parties expressly acknowledge that the Servicer shall have no obligation to give any notices to, comply with any requests or directions of, or otherwise be responsible for communicating or coordinating with any guarantor or surety of any Serviced Loans, except as the Servicer may specifically agree.

Section 2.03. Servicing Reports

(A) The Servicer shall provide via FTP and/or online self service to the Trust, the Secured Party and the Guarantor periodic Servicing Reports described in Schedule C hereto.

(B) The Servicer shall provide all Servicing Reports, at the Servicer’s election, either (i) by delivery to the Trust, the Secured Party, and/or the Guarantor, as the case may be, as provided in Section 6.08 hereof or (ii) by making such Servicing Reports available to the Trust, the Secured Party and/or the Guarantor, as the case may be, in electronic format (including on a server to which the Trust, the Secured Party or the Guarantor, as the case may be, is granted access).

(C) The parties to this Agreement shall comply with all Applicable Laws, including (without limitation) those relating to privacy and information security, in connection with the provision, receipt, storage, and use of the Servicing Reports.

(D) The Servicer agrees to provide a Data Dump as defined in Schedule C as of the end of each month on the first Business Day of the following month, provided that the failure to provide the Data Dump (as defined in Schedule C) by the 15^th day of the month following the month to which such Data Dump relates shall (subject to Section 5.04(A) hereof) be a material failure for purposes of Section 1.01(AA)(2) hereof.

-6-

Section 2.04. Manner of Performance of Services

The Servicer shall be entitled to determine the manner in which the Services are accomplished and shall have the right to effect such changes or modifications to its equipment, computer programs, reports, procedures and techniques as it deems necessary or advisable without the consent of the Trust, the Secured Party, or the Guarantor; provided, however, that such determination, changes or modifications shall not abrogate or in any way modify the Servicer’s obligations under this Agreement (including with respect to the standard of care relating to the servicing of the Serviced Loans). The Servicer shall notify the Trust, the Secured Party and the Guarantor of any major systems modifications, such as replacing its hardware or software platforms.

Section 2.05. Safekeeping of Loan Documents

A copy of each Note and either originals, duplicate copies or other electronic documentation of all other material documents related to the Serviced Loans which are in the custody of the Servicer shall be maintained by the Servicer. The Servicer shall employ reasonable efforts, consistent with industry standards, to safeguard the Serviced Loan documentation from loss, damage or destruction due to fire, flood, theft, or other hazard. The Servicer shall execute backups of all of the electronic files relating to Serviced Loans to magnetic tape or other electronic media, and periodically rotate a copy of such electronic files to an off-site storage facility. Notwithstanding the foregoing, the Servicer may destroy physical loan documentation to the extent such destruction does not violate the Program Requirements, if adequate primary and back-up electronic records are maintained of such destroyed physical loan documentation to the extent required by the Program Requirements.

Section 2.06. Examination of Records

(A) The Trust, the Secured Party, the Guarantor, and their respective agents, auditors, and consultants (each of which is referred to herein as an “Examiner”) will have the right, at any time and from time to time (subject to the limits set forth in Section 2.06(B) below), during normal business hours, with at least five Business Days’ notice, to examine, audit, and copy any and all of the Servicer’s records or accounts pertaining to any Serviced Loan, including loan documentation, and to interview or consult with the Servicer’s officers and employees as it deems necessary to determine compliance with this Agreement. Any such examination or audit shall be at the expense of the party on whose behalf it is conducted.

(B) Except during the continuance of a Servicer Default, each of the Trust (and its agents, auditors and consultants), the Secured Party (and its agents, auditors and consultants), and the Guarantor (and its agents, auditors and consultants) shall be limited to a single such examination or audit in any calendar year.

(C) Prior to granting access as provided in Section 2.06(A), the Servicer may require that any Examiner sign an agreement containing the confidentiality provisions set forth in Section 6.02(E) hereof.

-7-

Section 2.07. Appointment as Agent

The Trust hereby appoints the Servicer as its agent (and, at such time if any, as the Secured Party becomes owner of a Serviced Loan, the Secured Party hereby appoints the Servicer as its agent) solely for endorsing and depositing negotiable instruments (checks, money orders, etc.) made payable to the Trust (or the Secured Party) but in the possession of the Servicer for the purpose of crediting Borrower accounts.

Section 2.08. Reports and Audits Relating to the Servicer

The Servicer shall provide to the Trust, the Secured Party and the Guarantor in the manner provided in Section 2.03(B):

By December 31 of each year, commencing 2012, a report prepared by independent certified public accountants selected by the Servicer, of a type II SSAE 16 audit.

Section 2.09. Additional Information and Actions

In addition to information otherwise required to be provided hereunder and actions otherwise required to be taken hereunder, from time to time upon request during the term of this Agreement, the Servicer shall submit such information and take such action as may be reasonably requested by the Trust, the Secured Party or the Guarantor to assure that the Serviced Loans are maintained in a proper and secure condition; provided, however, that if additional programming is required to provide such information, the party requesting such information shall pay for such programming at the rate set forth in Schedule A (unless such programming would otherwise be required to meet the standard of care set forth herein or for reports or processes integrated by the Servicer into its loan servicing generally), and as a condition to its obligation to provide such information, the Servicer shall be entitled to reasonable assurance of such payment (if applicable).

ARTICLE III

COMPENSATION

Section 3.01. Amount of Compensation

(A) The Trust shall pay or cause to be paid to the Servicer the fees and expenses specified in Schedule A hereto for the performance of the Services with respect to the Serviced Loans. The fees specified in Schedule A hereto shall remain fixed for the term of this Agreement, except as otherwise provided in subsection (B) below.

(B) If any of the Program Requirements are amended or otherwise changed (including any change in the interpretation or applicability of Applicable Laws) or if the Servicer agrees to perform additional services based upon the applicability or (in the case of laws that the Servicer has determined, based on the advice of counsel, are reasonably likely to be held to be applicable) potential applicability of other laws after the date of this Agreement so as to materially increase the costs or obligations of the Servicer in providing the Services

-8-

hereunder, the Servicer shall be entitled to propose to the Trust, the Secured Party, and the Guarantor an amendment to this Agreement which would increase fees to offset the documented additional costs of complying with such amendment or change or performing such additional services, and if the parties are unable to agree upon such amendment within 60 days after the proposed amendment is sent to the Trust, the Secured Party, and the Guarantor, then the Servicer shall be entitled to terminate this Agreement upon 90 days’ prior written notice to the Trust, the Secured Party, and the Guarantor.

(C) The Servicer’s compensation for managing the collection of Defaulted Loans shall be the amount it retains from collections received with respect to the Defaulted Loans pursuant to Section 5.03(A).

Section 3.02. Statements

The Servicer shall send to the Trust and the Secured Party a billing statement for the fees, expenses, and other amounts due (including pursuant to Section 6.05 hereof) pursuant to this Agreement with respect to each month. The Servicer shall transmit each billing statement no later than ten Business Days before the 27th day of the following month; provided, however, that any delay in such mailing shall not relieve the Trust of its obligation to pay the fees due hereunder.

Section 3.03. Due Dates for Payments

(A) Except as provided in Section 3.03(B), the Trust shall pay the Servicer for Services rendered in each month on the 27th day of the following month (or, if such day is not a Business Day, on the next Business Day). If the Servicer has timely submitted its billing statement, then except as provided in Section 3.03(B), the Trust shall pay a late charge of 1.5% per month on any payment not received on such date until such amount is paid. The Servicer acknowledges that, for so long as the Indenture remains in effect and the applicable Serviced Loans remain subject thereto, such amounts shall be payable solely from amounts available therefor under the Indenture, including payments from the Guarantor required under the Guarantee Agreement (as defined in the Indenture).

(B) In the event of any good faith dispute by the Trust regarding any amount for the current billing period over $5,000 billed by the Servicer, the Trust may, by written notice to the Servicer detailing the grounds for the dispute, withhold payment of such disputed amount for a reasonable period pending resolution of the dispute, but shall pay the undisputed portion billed when and as due. Any amount in dispute that does not exceed $5,000 shall be paid as provided in Section 3.03(A). The parties will use best efforts to resolve any disputes within 90 days of the date payment would otherwise be due.

(C) Upon any termination of this Agreement, all fees, expenses, and other amounts owed to the Servicer hereunder shall become immediately due and payable.

-9-

ARTICLE IV

REPRESENTATIONS AND WARRANTIES

Section 4.01. Representations and Warranties of the Servicer

The Servicer hereby represents and warrants that it is duly organized and validly existing as a limited liability company in good standing under the laws of the state of Delaware.

Section 4.02. Representations and Warranties of the Trust

The Trust hereby represents and warrants that it is duly organized and validly existing as a statutory trust in good standing under the laws of the state of Delaware.

Section 4.03. Representations and Warranties of Secured Party

The Secured Party hereby represents and warrants that it is duly organized and validly existing as a banking corporation in good standing under the laws of the state of New York, and is the duly qualified, appointed and acting trustee under the Indenture.

Section 4.04. Representations and Warranties of the Guarantor

The Guarantor hereby represents and warrants that it is duly organized and validly existing as a corporation in good standing under the laws of the state of Delaware.

Section 4.05. Mutual Representations and Warranties

Each party hereby represents and warrants to the others as follows:

(A) It has the corporate (or trust) power and authority to own its assets and carry on its business as contemplated by this Agreement, and to enter into, and perform in accordance with, the terms of this Agreement.

(B) It has, and its officers (or trustee) acting on its behalf have, the requisite corporate (or trust) authority to engage in the transactions contemplated by this Agreement, and the execution and delivery of this Agreement, the consummation of the transactions herein contemplated and compliance with the terms, conditions and provisions of this Agreement do not and will not violate, conflict with or result in a breach of any of the terms, conditions or provisions of applicable law, its organizational and governing documents or any agreement or instrument to which it is a party or by which it is bound, or constitute a default thereunder; and it is not a party to or bound to any agreement or instrument or subject to any corporate (or trust) restriction or judgment, order, writ, injunction, decree, law, rule or regulation which may materially and adversely affect its ability to perform its obligations under this Agreement.

(C) This Agreement constitutes a valid and binding obligation of such party, enforceable against it in accordance with its terms, except as such enforcement may be limited by applicable bankruptcy, insolvency, receivership, reorganization and other similar laws relating to creditors’ rights generally and to general principles of equity.

-10-

(D) It has obtained all consents, approvals, licenses, exemptions or authorizations of, or filings or registrations with, any government or governmental body which are required in connection with the execution and delivery of this Agreement and the performance of its obligations hereunder, the failure to obtain which could materially and adversely affect its ability to perform its obligations under this Agreement.

(E) There is no pending action, suit, proceeding, inquiry or investigation with respect to which notice has been served upon it before any court, governmental or public entity or arbitrator against or affecting, directly or indirectly, it or any of its properties, which if adversely determined would have a material adverse effect on its ability to perform its obligations hereunder, and, to the best of its knowledge, no such action or proceeding has been threatened.

ARTICLE V

TERM AND TERMINATION

Section 5.01. Term of Agreement

Unless sooner terminated in accordance with the terms hereof, this Agreement shall remain in full force and effect with respect to all Serviced Loans from the date hereof until there are no Serviced Loans outstanding and the Trust has no further right or obligation to acquire beneficial ownership of Program Loans under the Program Loan Origination Agreement.

Section 5.02. Termination

(A) The Voting Party may terminate this Agreement, by written notice to the Servicer, (i) at any time after the occurrence and during the continuance of a Servicer Default or (ii) as provided in Section 5.04(A).

(B) The Servicer may terminate this Agreement as provided in Section 3.01(B) hereof.

(C) If (i) the Trust fails to pay or cause to be paid any fees or other amounts required under Article III as and when due, or (ii) the Trust or the Guarantor, as the case may be, fails to pay or cause to be paid any indemnity payment under Section 6.05(B) or (C) hereof when due, and such failure is not cured within 10 days after receipt by the Trust, the Secured Party, and the Guarantor of notice thereof, the Servicer may terminate this Agreement, by written notice to the Trust, the Secured Party, and the Guarantor.

(D) The Servicer may terminate this Agreement, on 180 days’ notice to the Trust, the Secured Party, and the Guarantor, if the Servicer ceases its third party loan collection servicing activities on an organization-wide basis.

(E) The Voting Party may terminate this Agreement by 30 days’ written notice to the Servicer, or the Servicer may terminate this Agreement by 30 days’ written notice to the Trust, the Secured Party, and the Guarantor, upon the conditions specified in Schedule F.

-11-

Section 5.03. Termination with Respect to Specific Loans

(A) This Agreement shall cease to apply with respect to a Serviced Loan when such Serviced Loan is paid in full or becomes a Defaulted Loan; provided, that the Servicer shall assign to one or more collection agencies any such Defaulted Loan, shall continue to account for such Defaulted Loan, and shall transfer to the Secured Party an amount equal to 73.5% of the gross amount received (prior to reduction for collection agency fees) with respect to such Defaulted Loan (and shall retain the balance as its compensation for collection and management of collection of, and accounting for, Defaulted Loans).

(B) The Trust may elect that this Agreement cease to apply with respect to Defaulted Loans, upon 90 days written notice to the Servicer, at any time. In such event (and thereafter when Serviced Loans become Defaulted Loans), the Servicer shall provide to the Servicing and Collections Advisor, or such other Person as the Trust may direct, the electronic files maintained by the Servicer on its recovery system and the physical files relating to the Defaulted Loans, and to the extent the Servicer does not provide any documentation related to such Defaulted Loans, the Servicer shall continue to comply with Section 2.05 hereof with respect to such Defaulted Loan documentation.

Section 5.04. Impossibility of Performance; Disaster Recovery Plan

(A) If the Servicer is rendered unable, wholly or in part, by a force outside of its control (including but not limited to acts of God, strikes, lockouts, riots, acts of war or terrorism, epidemics, fire, communication line or power failure, earthquakes or other disasters) to carry out its obligations under this Agreement, the Servicer shall give to the Trust, the Secured Party, and the Guarantor prompt written notice to that effect. Thereupon, the affected obligations of the Servicer shall be suspended so long as the Servicer is unable to so perform any affected obligation; provided, however, the Voting Party may terminate this Agreement if such inability or suspension continues for more than one week and results in a failure by the Servicer to perform its basic functions under this Agreement.

(B) The Servicer will maintain a disaster recovery plan, which is designed to achieve, within commercially reasonable parameters, the continuous operation, and in the event of a material interruption, the recovery of all material business functions needed to meet the Servicer’s obligations under this Agreement. The Servicer’s disaster recovery plan will include, at a minimum, procedures for back-up and restoration of operating and administrative equipment and computer systems; procedures and third party agreements for replacement equipment (e.g., computer systems) and procedures and third party agreements for off-site production facilities. The Servicer will provide the Trust, the Secured Party, and the Guarantor with a disaster recovery plan summary and test results of such plan no less frequently than on an annual basis and will make its disaster recovery plan available for the Trust’s, the Secured Party’s and the Guarantor’s review at Servicer’s site upon reasonable request, at no charge. If any event described in Section 5.04(A) occurs, the Servicer shall service the Serviced Loans in the same manner as it services other private student loans pursuant to the Servicer’s business continuity and disaster recovery plan.

-12-

Section 5.05. Deconversion Services

(A) Upon the expiration or termination of this Agreement, the Servicer shall provide the Deconversion Services.

(B) The Deconversion Services shall be provided at the Servicer’s sole cost and expense, unless this Agreement is terminated by the Servicer as provided in Section 5.02(B) or (C) hereof, or by the Voting Party as provided in Section 5.02(E) hereof. In any of the cases set forth in the preceding sentence, the Deconversion Services shall be at the Trust’s cost as provided in Schedule A. The Servicer shall have no obligation to provide the Deconversion Services in such case unless it shall have reasonable assurance that it will be paid for such Deconversion Services in accordance with the terms hereof.

Section 5.06. Forwarding of Payments

After termination of this Agreement pursuant to Section 5.02 or termination with respect to Defaulted Loans pursuant to Section 5.03 (B), the Servicer shall forward to the Secured Party payments received with respect to Student Loans that were formerly Serviced Loans, promptly upon Servicer’s determination that the payments relate to such Student Loans.

ARTICLE VI

MISCELLANEOUS

Section 6.01. Limited Agency Powers

The Servicer is an independent contractor and is not, and will not hold itself out to be, the agent of the Trust, the Lender Trustee, the Secured Party, or the Guarantor except with respect to the limited agency powers specifically provided herein.

Section 6.02. Confidentiality; Trade Secrets and Proprietary Information

(A) This Agreement is considered confidential information of each party and shall not be copied or disclosed by any party to anyone other than employees, officers, directors, counsel, accountants and agents whose responsibilities require such disclosure, to affiliates and potential purchasers of such party, to any governmental agency having supervision over such party, to the Owner Trustee, and investors in the notes issued under the Indenture or as otherwise required by law, without the express written consent of the other parties.

(B) Except as provided in this Section 6.02(B), the Servicer (i) will use the Customer Information solely for the purpose of performing its duties and exercising its rights under this Agreement, (ii) will not use the Customer Information for any other purpose, and (iii) will not disclose or communicate the Customer Information, directly or indirectly, to any third party except as may be necessary or appropriate for the performance of its duties and the exercise of its rights hereunder. The Servicer further agrees that, except as described in this Section 6.02(B), the Customer Information will be disclosed only to such of its employees, agents and contractors who need access to the Customer Information for the purposes described

-13-

above. The foregoing shall not restrict the Servicer’s use of Customer Information in connection with, or relating to (1) persons who have become “consumers” (within the meaning of the Gramm-Leach-Bliley Act) of the Servicer or (2) data gathering and analysis done by the Servicer regarding loan repayment that does not contain individual borrowers’ nonpublic personal information.

(C) The Servicer shall implement and maintain information security measures to protect against unauthorized access to or use of Customer Information, and meet the objectives of the Interagency Guidelines Establishing Standards for Safeguarding Customer Information, Final Rule (12 C.F.R. Part 30, Appendix B), and the Federal Trade Commission’s Standards for Safeguarding Customer Information (16 C.F.R. part 314), including without limitation: (i) access controls on information systems; (ii) access restrictions at physical locations containing Customer Information; (iii) encryption of electronic Customer Information communicated via CommonLine^SM, secure connections for website access, and with respect to other transmissions by the Servicer of Customer Information compliance with the Servicer’s safeguards program as communicated to the Trust, the Secured Party, and the Guarantor from time to time; (iv) monitoring systems and procedures to detect attempts to access servers on which Customer Information resides; (v) measures to protect against destruction, loss or damage of Customer Information due to potential environmental hazards such as fire and water damage or technological failures; (vi) testing of key controls, systems and procedures; and (vii) monitoring the information security policies of any of its subcontractors that are provided with Customer Information.

(D) The Trust, the Secured Party, and the Guarantor hereby acknowledge that all materials, procedures, written instruments, files and records (except specific Borrower files and records) developed by the Servicer in connection with the Services and the performance of its other obligations hereunder are and shall be treated as proprietary in nature. Neither the Trust, the Secured Party, nor the Guarantor shall have or acquire any proprietary or any other right whatsoever in any such materials, procedures, written instruments, files, or records developed by the Servicer.

(E) Subject to any disclosure obligation imposed by law or regulation, any examinations or audits of the Servicer conducted under Section 2.06, any financial statements or other information of the Servicer provided under Sections 2.08 or 2.09, any business continuity and disaster recovery plan of the Servicer, any other information disclosed by or on behalf of the Servicer in connection herewith or therewith, and any copies of documents made or other documents generated in connection herewith or therewith, shall be treated as confidential by the Trust, the Secured Party, the Guarantor, and each Examiner and used only for the purpose of managing and administering the Serviced Loans and determining compliance by the Servicer hereunder. No documents or information provided in connection therewith shall be delivered by the Trust, the Secured Party, the Guarantor, or the Examiner to any third party other than the Trust’s, the Secured Party’s or the Guarantor’s accountants, attorneys, or other professional advisors (in each case, which has agreed in writing for the Servicer’s benefit to be bound by confidentiality provisions set forth in this Section 6.02) or governmental agencies having jurisdiction over the Trust or the Secured Party. The Trust, the Secured Party, the Guarantor and each Examiner will adopt procedures and safeguards to protect against unauthorized disclosure of such documents or information, and shall, at a minimum, exercise the same

-14-

standard of care to protect the Servicer’s confidential or proprietary documents and information from unauthorized disclosures as is used to protect its own confidential or proprietary documents and information from unauthorized disclosure.

Section 6.03. Amendments; Entire Agreement; Prior Agreements

(A) This Agreement may not be amended or modified in any respect except by an instrument in writing signed by each party to be affected thereby and communicated in accordance with Section 6.08 hereof regarding notices and as otherwise provided in this Agreement.

(B) This Agreement shall be the entire agreement between the parties with respect to the subject matter hereof and supersedes all prior written or oral agreements, representations, statements, negotiations, and undertakings among any of the Servicer, the Trust, the Secured Party and the Guarantor with respect to the Services. In the event of an inconsistency between the provisions of the Schedules attached hereto and the provisions of Articles I through VI of this Agreement, the Schedules shall prevail.

Section 6.04. Assignment and Subcontracting

(A) Except as provided in subsection (B), (C), (D) and (E) below, this Agreement may be assigned by any party only with the consent of the other parties.

(B) The Servicer may assign its rights to receive payments under this Agreement and/or may subcontract its obligations hereunder without the consent of the Trust, the Secured Party, or the Guarantor; provided, however, that (except as provided in subsection (C) below) unless the Trust, the Secured Party, and the Guarantor have otherwise agreed, the Servicer (i) shall not subcontract its obligations in their entirety, (ii) shall not subcontract its management and oversight of servicing operations, and (iii) shall remain responsible for the performance of all of the Services with respect to the related Serviced Loans in accordance with the standards set forth herein.

(C) The Servicer may, without the consent of the Trust, the Secured Party, or the Guarantor, assign its rights under this Agreement to an affiliated entity; provided, however, that unless the Trust, the Secured Party, and the Guarantor have otherwise agreed, Access Group, Inc. shall remain responsible for the performance of its duties hereunder.

(D) Subject to the restrictions in the Indenture and the Trust Agreement, the Trust may assign its rights hereunder to an assignee of Serviced Loans that assumes the related obligations of the Trust hereunder.

(E) The Servicer acknowledges that the Trust will assign its rights hereunder to the Secured Party, as collateral security to secure the payment of the Trust’s notes issued under the Indenture. The Secured Party agrees that it shall, upon foreclosure upon any such collateral security, assume (or cause any assignee of the Serviced Loans or the rights of the Trust hereunder to assume) the related obligations of the Trust hereunder.

-15-

(F) All covenants and agreements herein contained shall extend to and be obligatory upon all assigns and successors of the respective parties hereto.

Section 6.05. Indemnity

(A) Servicer Indemnification. The Servicer agrees to indemnify and hold the Trust, the Secured Party, and the Guarantor and their respective directors, officers, employees and agents harmless of, from and against any and all loss, liability, cost, damage or expense, including reasonable attorneys’ fees and disbursements (collectively, “Damages”), resulting from any misrepresentation, any breach of warranty, or non-fulfillment of any agreement or covenant on the part of the Servicer under this Agreement.

The Servicer assumes no responsibility or liability for the failure of:

(1) any originator or servicer (in either case, other than the Servicer) to exercise reasonable care or due diligence in making or servicing a Serviced Loan prior to the Servicer assuming responsibility for providing Services with respect to such Serviced Loan;

(2) any Borrower or co-signer to repay a Serviced Loan; provided, however, that with respect to any former Serviced Loan that has been deconverted in connection with the termination of this Agreement pursuant to Section 5.02, the Servicer’s indemnification obligation shall apply to the amount of any loss of the legal right to collect, or reductions in any amounts payable on or with respect to, such former Serviced Loan that result, directly or indirectly, from the Servicer’s failure to provide any Data Dump, as provided in Section 2.03(D) hereof, or the Deconversion Services, as provided in Section 5.05 hereof, to the extent such loss or reductions result from the application of Applicable Law to such former Serviced Loan, as serviced by a successor servicer;

(3) the terms and conditions of any Serviced Loan or the Program Guidelines to comply with applicable law; or

(4) any Truth-in-Lending disclosure to comply with the Federal Truth-in-Lending Act or Regulation Z unless the Originating Lender has provided, and the Servicer fails to comply with, express instructions concerning completion of the notice.

(B) Trust Indemnification. The Trust agrees to indemnify and hold the Servicer and its directors, officers, employees and agents harmless of, from and against any and all loss, liability, cost, damage or expense, including reasonable attorneys’ fees and disbursements (collectively, “Costs and Damages”), resulting from:

(1) Any failure of the Trust to pay the fees and expenses provided for under Article III hereof;

(2) Any breach by the Trust or the Secured Party of their respective obligations hereunder;

-16-

(3) Any violation of the Fair Debt Collection Practices Act or other borrower or consumer protection laws based in whole or in part on collection activities conducted by any insurer or guarantor (which terms do not include the Guarantor) of a Serviced Loan or Defaulted Loan (including the Servicer’s failure to comply with instructions provided to any such other party by or on behalf of a Borrower); or

(4) The Servicer’s performance of the Services hereunder (including, without limitation, any Costs and Damages arising from the Servicer being made a defendant in or being required to appear in any legal action or other proceeding relating to the Serviced Loans or Defaulted Loans), except to the extent arising from the Servicer’s (i) negligence, (ii) willful misconduct, or (iii) breach of the terms of this Agreement (including its obligation to comply with the Program Requirements).

(C) Guarantor Indemnification. The Guarantor agrees to indemnify and hold the Servicer and its directors, officers, employees and agents harmless of, from and against any Costs and Damages, resulting from:

(1) Any breach by the Guarantor of its obligations hereunder; or

(2) Any violation of the Fair Debt Collection Practices Act or other borrower or consumer protection laws based in whole or in part on collection activities conducted by the Guarantor or any School, or their respective agents (including the Servicer’s failure to comply with instructions provided to any such other party by or on behalf of a Borrower that have not been provided to the Servicer by or on behalf of such Borrower).

(D) Indemnification Conditioned. Notwithstanding the foregoing in this Section 6.05, the obligation of any party to indemnify and hold harmless any other party as an indemnified party is expressly conditioned on such indemnified party fully satisfying all of the following conditions: (i) providing the indemnifying party with prompt, written notice of any such Damages, or any claim that could result in any such Damages (provided that failure to provide notice will not relieve an indemnifying party of its obligations under this Section 6.05 except to the extent the indemnifying party is prejudiced by such failure) and (ii) cooperating fully with the indemnifying party and its legal representatives in the investigation and defense of any and all such claims. The indemnified party shall have the right to employ separate counsel at its own expense to participate in the defense of any action with respect to which such party is indemnified. The indemnifying party shall not compromise any claim subject to indemnification if such compromise requires anything other than the payment of money, without the prior written consent of the indemnified party.

(E) Liability Limited. Notwithstanding the foregoing in this Section 6.05:

(1) In no event shall any party be liable for any special, consequential, exemplary or punitive damages with respect to any matter whatsoever arising out of this Agreement; provided that the foregoing shall not relieve any party of its obligation to indemnify another party against any such damages awarded to a third party.

-17-

(2) It is expressly understood and agreed by the parties to this Agreement that (a) this Agreement is executed and delivered by Deutsche Bank Trust Company Delaware not in its individual or personal capacity but solely in its capacity as trustee under the Trust Agreement on behalf of the Trust, in the exercise of the powers and authority conferred and vested in it as trustee under the Trust Agreement, subject to the protections, indemnities and limitations from liability afforded to the Owner Trustee thereunder; (b) the representations, warranties, covenants, undertakings, agreements and obligations by the Trust are made and intended not as personal representations, warranties, covenants, undertakings, agreements and obligations by the administrator of the Trust under the Administration Agreement, or the Owner Trustee, but are made and intended for the purpose of only binding the Trust; (c) nothing contained herein shall be construed as creating any liability on such administrator or the Owner Trustee, individually or personally, to perform any expressed or implied covenant, duty or obligation of the Trust of any kind whatsoever contained herein; and (d) under no circumstances shall such administrator or the Owner Trustee be personally liable for the payment of any fees, costs, indebtedness or expenses of any kind whatsoever or be personally liable for the breach or failure of any obligation, representation, agreement, warranty or covenant whatsoever made or undertaken by the Trust hereunder.

Section 6.06. Insurance

The Servicer will, at all times during the term of this Agreement and at its own expense, cause to be carried and maintain in full force and effect insurance in such amounts and with such terms as follow:

(i) comprehensive general liability with limits not less than $1 million per occurrence and $2 million annual aggregate ($3 million annual aggregate commencing May 1, 2012), with coverages to include contractual liability, personal injury and advertising injury;

(ii) statutorily required worker’s compensation;

(iii) employer’s liability of $1 million per employee/occurrence;

(iv) crime liability of $500,000 per occurrence ($2 million commencing May 1, 2012);

(v) umbrella liability with limits not less than $3 million per occurrence and aggregate ($10 million commencing May 1, 2012);

-18-

The Servicer will provide certificates of insurance to the Trust, the Secured Party and the Guarantor evidencing compliance with the above requirements at the time of execution of this Agreement and, upon request, on an annual basis thereafter as the policies renew or expire.

Section 6.07. Governing Law

This Agreement shall be interpreted under and governed by the laws of the State of Delaware, without regard to conflict-of-laws rules.

Section 6.08. Notices

Notices, requests or demands which may or are required to be given by any party hereunder shall be in writing or by e-mail and shall be deemed to have been properly given upon actual receipt or (i) seventy-two (72) hours after being sent by certified mail, return receipt requested, (ii) forty-eight (48) hours after being sent by national overnight courier, or (iii) upon receipt by the sender of electronic or oral confirmation of receipt of an e-mail message by the intended recipient.

All such notices and other items required to be delivered hereunder shall be addressed as follows:

If intended for the Trust or the Owner Trustee:

c/o Deutsche Bank Trust Company Delaware

1011 Centre Road, Suite 200

Wilmington, Delaware 19805

Attention: Elizabeth B. Ferry

Telephone: (302) 636-3392

Facsimile: (302) 636-3399

Email: elizabeth.b.ferry@db.com

With a copy to:

Deutsche Bank Trust Company Americas

c/o Deutsche Bank National Trust Company

100 Plaza One

Jersey City, New Jersey 07311

Attention: Susan Barstock

Telephone: (201) 593-8421

Facsimile: (212) 553-2458

Email: susan.barstock@db.com

And a copy to:

Access Group, Inc.

Attention: Vice President Portfolio Management

5500 Brandywine Parkway

-19-

Wilmington, Delaware 19803

Telephone: (302) 477-4071

Facsimile (302) 477-4032

Email: pquigley@accessgroup.org

If intended for the Secured Party:

Deutsche Bank Trust Company Americas

c/o Deutsche Bank National Trust Company

100 Plaza One

Jersey City, New Jersey 07311

Attention: Susan Barstock

Telephone: (201) 593-8421

Facsimile: (212) 553-2458

Email: susan.barstock@db.com

If intended for the Servicer:

First Associates Loan Servicing, LLC

15090 Avenue of Science

San Diego, CA 92128

Attention: Laurence Chiavaro

Executive Vice President

Telephone: (858) 451-2444

Facsimile: (858_ 451-0022

Email: lchiavaro@1stassociates.com

If intended for the Guarantor:

ITT Educational Services, Inc.

Attention: Chief Financial Officer

13000 N. Meridian Street

Carmel, Indiana 46032

Telephone: (317) 706-9200

Facsimile: (317) 706-9254

Email: dfitzpatrick@ittesi.com

Any party may change the address to which communications to it are to be sent by notice to the other parties given as aforesaid.

Section 6.09. Severability

Any provision of this Agreement which is prohibited, unenforceable or not authorized in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition, unenforceability or lack of authorization without invalidating the remaining provisions hereof or affecting the validity, enforceability or legality of such provision in any other jurisdiction.

-20-

Section 6.10. Survival

All covenants, agreements, representations, warranties and indemnities contained in this Agreement shall survive the termination of this Agreement as covenants, agreements, representations, warranties and indemnities for any occurrence or failure occurring during the term of this Agreement.

Section 6.11. Waiver of Rights

No failure by any party to exercise, or any delay in exercising, and no course of dealing with respect to any right of such party or any obligation of any other party under this Agreement shall operate as a waiver thereof, unless, and only to the extent, agreed to in writing by such party. Any single or partial exercise by any party of its rights shall not preclude such party from any other or further exercise of such right or the exercise of any other right. Any single or partial waiver by any party of any obligation of any other party under this Agreement shall constitute a waiver of such obligation only as specified in such waiver and shall not constitute a waiver of any other obligation.

Section 6.12. Cumulative Remedies

No remedy by the terms of this Agreement conferred upon or reserved to the Servicer, the Trust, the Secured Party, or the Guarantor is intended to be exclusive of any other remedy, but each and every such remedy shall be cumulative and in addition to every other remedy given under this Agreement or existing at law or in equity or by statute on or after the date of this Agreement including, without limitation, the right to such equitable relief by way of injunction, to prevent the breach or threatened breach of any of the provisions of this Agreement or to enforce the performance hereof.

Section 6.13. Certain References Ineffective After Transfer or Discharge

(A) References to Trust Agreement. References herein to the Trust Agreement shall be of no further force and effect to the extent that the Trust is no longer the owner of Serviced Loans. In such event, this Agreement shall be construed without regard to those references.

(B) References to Indenture and Secured Party. References herein to the Indenture, the Secured Party, and the Guarantor shall be of no further force and effect to the extent the Trust’s obligations under the Indenture shall have been discharged as provided in the Indenture. In such event, this Agreement shall be construed without regard to those references.

Section 6.14. Headings

The Article and Section headings contained in this Agreement are for convenience only and shall not be deemed part of this Agreement.

-21-

Section 6.15. Execution in Counterparts

This Agreement may be executed in one or more counterparts, each of which shall be deemed an original and all of which shall be deemed to constitute but one and the same instrument.

Section 6.16. Certain Activities in U.S. Only

The Servicer will perform all Services hereunder that involve communications with a Borrower or a School from locations in, and by employees or agents located in, the United States, except in the case of Services with respect to a Borrower whose residence is located outside the United States.

Section 6.17. Bankruptcy Non-Petition

Neither the Servicer, the Secured Party, nor the Guarantor will at any time institute against the Trust any bankruptcy proceeding under any United States federal or State bankruptcy or similar law in connection with any obligations of the Trust under this Agreement; provided, that nothing in this Section shall preclude any party hereto from taking any action in any case or proceeding voluntarily filed or commenced by the Trust or in any involuntary proceeding filed or commenced against the Trust by any other person.

-22-

IN WITNESS WHEREOF, the Servicer, the Trust, the Secured Party and the Guarantor have executed this Agreement as of the date and year first above written.

FIRST ASSOCIATES LOAN SERVICING, LLC
By:	/s/ Laurence Chiavan
	Laurence Chiavan, Executive Vice President
PEAKS TRUST 2009-1
By:	Deutsche Bank Trust Company Delaware, not in its individual capacity, but solely as trustee under the Trust Agreement
	By:	/s/ Susan Barstock
		Susan Barstock
		Attorney-in-fact
	And:	/s/ Ellen Jean-Baptiste
		Ellen Jean-Baptiste
		Attorney-in-fact
DEUTSCHE BANK TRUST COMPANY AMERICAS, as indenture trustee under the Indenture
By:	Deutsche Bank National Trust Company
By:	/s/ Susan Barstock
	Susan Barstock
	Vice President
And:	/s/ Ellen Jean-Baptiste
	Ellen Jean-Baptiste
	Associate
ITT EDUCATIONAL SERVICES, INC.
By:	/s/ Kevin M. Modany
	12/2/11
	Kevin M. Modany, Chairman and CEO

[Signature Page to Agreement for Servicing Private Student Loans]

SCHEDULE A

FEE SCHEDULE

Basic Servicing Fee: 1.025% per annum, based on the aggregate principal balance, as of the last day of the month, of (1) the Serviced Loans (which shall not include Defaulted Loans); and (2) the Student Loans (or portions thereof) in which the Trust owns a 100% participation interest as provided in the Program Loan Origination Agreement. The Basic Servicing Fee shall be computed on the basis of a 360-day year for the actual number of days elapsed.

Deconversion fees shall be $25 per Borrower; provided that if the Agreement is terminated by the Voting Party pursuant to Section 5.02(E) hereof, the Trust will, in lieu of deconversion fees, pay the Servicer’s actual costs and expenses (as described in reasonable detail on submitted invoices) in connection with deconversion, up to a maximum amount of $500,000.

Additional activities, including development of additional reports, may be provided and billed as agreed upon between the parties. Programming will be billed at $125 per hour.

A-1

SCHEDULE B

SERVICES

The Servicer shall provide the following Services:

1. Receive and load electronic loan data onto the Servicer’s servicing system. Create and maintain electronic files and records pertaining to the Serviced Loans.

2. Update enrollment data, including by periodic monitoring of, and receipt of data from, the clearinghouse; convert Serviced Loans to Repayment in accordance with Program Guidelines.

3. After the Interim Period for a Serviced Loan ends, (i) establish a Repayment Schedule for such Serviced Loan consistent with the Note terms, and (ii) (subject to Section 6.05(A)(4) hereof) send to the Borrower a Truth-in-Lending repayment disclosure (to the extent required by the Truth-in-Lending Act).

4. Calculate and apply origination fee (if any) and interest rate as in effect at any given time, capitalize interest on a monthly basis when applicable, and recalculate monthly payment amounts on a quarterly basis during the Repayment Period, all pursuant to the Program Guidelines.

5. Grant Forbearance Periods to Borrowers consistent with the Program Guidelines.

6. During Repayment, provide monthly billing statements to Borrowers for principal and interest due.

7. Respond to inquiries and communications from Borrowers, Schools, the Trust, the Secured Party, the Lender Trustee and the Guarantor, and communicate with Borrowers, Schools, the Trust, the Secured Party, the Lender Trustee, the Guarantor and others to the extent necessary to appropriately provide Services. Provide telephone and internet customer service options for Borrowers.

8. Process Borrower payments on Serviced Loans promptly, and set up automatic bank account debit loan payments upon Borrower request.

9. Remit payments received (net of any reversals) on Serviced Loans to the Secured Party (or the assignee of the Serviced Loan) within three Business Days after receipt or such longer period as may be permitted by the Secured Party (or the assignee of the Serviced Loan).

10. Prepare and send Internal Revenue Service Forms 1098 to Borrowers for which tax documentation is provided in connection with their Serviced Loans.

11. Perform collection calls and send delinquency notifications to delinquent Borrowers in accordance with the Program Guidelines.

12. Provide skip tracing activities in accordance with the Program Guidelines.

B-1

13. Report repayment performance to credit reporting agencies in accordance with the Program Guidelines.

14. Send annual privacy policy notices on behalf of the Trust.

15. Other services specified to be performed by the Servicer (but not the Origination Agent) in the Program Guidelines.

B-2

SCHEDULE C

REPORTS

Item	Report Name	Report Description	Dissemination Method	Frequency
1	Principal Reconcile - Lender Summary (Accrual Summary Report)	The Principal Reconcile reports are used to reconcile the beginning and ending portfolio current principal balances (as reported by the loan records) to the monetary activity (as reported by the loan history records).	Online Self Service	Monthly
2	Interest Reconcile - Lender Summary (Accrual Summary Report)	The Interest Reconcile reports are used to reconcile the beginning and ending portfolio current Borrower interest balances (as reported by the loan records) to the monetary activity (as reported by the loan history records).	FTP and/or Online Self Service	Monthly
3	Fees Reconcile - Lender Summary (Accrual Summary Report)	The Fees Reconcile report is used to reconcile the beginning and ending portfolio current fees balances (as reported by the loan records) to the monetary activity (as reported by the loan history records).	Online Self Service	Monthly
4	Disbursement Cancellation Report	The Disbursement Cancellations Report is a detailed list of the disbursements that were cancelled during the selected time period.	FTP	Monthly
5	Servicing Extract (“Data Dump”)	This report is a data snapshot of all Borrower Program Loans loans for Originating Lender Borrowers serviced by the Origination Processor; includes data pertaining to loan principal, interest accrual, payments (dates, amount, schedule, etc.).	Online Self Service and FTP	Monthly
6	Collections Detail Loan Report	This report lists loans in a delinquent status grouped by the different delinquency buckets (30 days, 60 days, 90 days, etc.).	Online Self Service	Monthly
7	Daily Activity File	A daily activity file at the transactional loan level that includes payments, disbursements, write-offs, capitalizations, interest accruals, and any other monetary activity that affects the balance of the loan	FTP	Daily
8	Weekly Balance File	A weekly balance loan level file that includes the outstanding principal / refund, interest, and fee(s) balance at the end of each week.	FTP	Weekly

C-1

SCHEDULE D

DECONVERSION SERVICES

Upon the occurrence of any event triggering Deconversion Services under the terms of the Agreement, the Servicer shall provide reasonable cooperation and assistance in transferring, to the entity designated by the Trust, those records and documents maintained by the Servicer in connection with the provision of Services with respect to the Serviced Loans being deconverted (or reports with respect thereto); provided that the Servicer shall not be obligated to forward any record or document in which it asserts proprietary rights or which relates to loans other than the Serviced Loans being deconverted. All records and documents shall be transferred in such medium as may be required under any applicable Program Requirements and not inconsistent with the Servicer’s private student loan servicing guidelines and all reports shall be in such detail as may be required under any applicable Program Requirements and not inconsistent with the Servicer’s private student loan servicing guidelines.

The Servicer shall use commercially reasonable efforts to provide records that are transferable in an electronic form maintained by the Servicer within 90 days after the triggering date and to provide paper records within a reasonable time (not to exceed 180 days) after the triggering date.

D-1

SCHEDULE E

PROGRAM GUIDELINES

E-1

Program Guidelines

PEAKS Private Student Loan Program

December 10, 2011

“Pre TILA Transition Date”

Table of Contents

Section		Page
1)	General Provisions		3
2)	Definitions (Defined Terms)		3
3)	Borrower and School Eligibility Requirements		3
4)	Loan Period		4
5)	Application Overview		4
6)	Borrower Credit Criteria		5
7)	Credit Decision Appeals		6
8)	Terms and Conditions of Loans		6
9)	Loan Limits		7
10)	School Certification		7
11)	Funds Disbursement		7
12)	Return of Loan Proceeds		7
13)	Interest Rate		9
14)	Loan File Documentation		9
15)	Capitalization of Interest		10
16)	Repayment Terms		10
17)	Account Billing		12
18)	Available Forbearances		13
19)	Making Demographic Changes		13
20)	Reporting Loans to Consumer Credit Reporting Agencies		14
21)	Financial Activity Reporting		14
22)	Collection and Default Activities and Due Diligence		14
23)	Bankruptcy		17
24)	Death		17
25)	Allowable Write-Offs and Refunds		17
	Addendum A Customer Identify Verification		19
	Addendum B Dictionary of Defined Terms		26
	Addendum C OFAC Procedure		27
	Addendum D Reconsideration Procedure		28
	Addendum E Originating Lender’s Privacy Policy		29

Page 2 of 29

1) General Provisions

a) Purpose

A PEAKS Private Student Loan is a Loan designed to meet the higher education financing needs of U.S. citizens or eligible noncitizens enrolled in associate, undergraduate or graduate programs of study, who are attending a school (“ITT ESI School”) owned and operated by ITT Educational Services, Inc. (“School”).

Unless otherwise noted, Access Group will be responsible for executing the loan origination (Origination Agent) functions contained in these Program Guidelines. The Access Group will be entitled to assume the accuracy of all information provided by the applicant, the Clearinghouse, the credit bureau and the School (including representatives of an ITT ESI School). Unless otherwise noted, and on and after the effective date of the Agreement for Servicing Private Student Loans as executed by First Associates Loan Servicing, LLC and others, First Associates (Servicer) will be responsible for the loan servicing functions contained in these Program Guidelines. First Associates will be entitled to assume the accuracy of all information provided to it by Access Group, the Program Applicant, the Clearinghouse, the credit bureau and the School.

These Guidelines do not include procedural changes for compliance with Title X regulation which is required by February 14, 2010. It is acknowledged by all parties that application processing, note form and disclosure will be affected by the implementation of the new regulation.

b) Applicability of Program Guidelines

These Program Guidelines apply to Loans made under the PEAKS Private Student Loan Program applied for prior to 2/12/2010.

c) Forms

In the Private Education Loan Origination and Sale Agreement, the Originating Lender has approved the forms attached here to as exhibits 7-12. The Origination Agent may use other or additional forms as necessary or appropriate in connection with its collection, review and disposition of application data, and may make revisions to the attached forms that do not affect compliance with consumer protection law.

2) Definitions (Defined Terms)

See Addendum B for a list of defined terms. Capitalized terms not defined in these Program Guidelines will have the meanings assigned in other applicable documents, such as the Private Education Loan Origination and Sale Agreement (the “Origination Agreement”) or the Application and Loan Agreement. Any conflict between these terms will be governed by the respective Agreement.

3) Borrower and School Eligibility Requirements

a) PEAKS Private Student Loan Borrower Eligibility

In order to borrow a Loan, a Borrower must be eligible under the following Program underwriting guidelines established by the Originating Lender:

i) ITT ESI Schools will certify in the Loan Certification process that the School has received an Institutional Student Information Report from the U.S. Department of Education for each Borrower.

Page 3 of 29

ii) Borrower must be enrolled or accepted for enrollment at least half-time (based on ITT ESI School criteria) at, or have graduated from, an ITT ESI School, as certified by the ITT ESI School. If the Borrower is accepted for enrollment, the applicable academic period must begin no later than 120 days after the Application date, based upon the school certification. If the Borrower has graduated, the graduation date must be no earlier than 120 days prior to the Application date. Former ITT ESI School students who did not graduate (e.g., dropped out of school) are not eligible for the PEAKS Loan. The applicable ITT ESI School will be responsible for determining this eligibility and will confirm through the loan certification process.

iii) Borrower must have completed by the Application date a minimum of 20 quarter credit hours (or the equivalent) of credit for college level courses. ITT ESI Schools will be responsible for determining this eligibility and will confirm through the Loan certification process.

iv) Borrower must be at least the following age, based on the Borrower’s current address as set forth in the Loan Application:

(1)	Alabama	19
(2)	Nebraska	19
(3)	Puerto Rico	21
(4)	All Other U.S. Locations	18

v) Borrower must electronically execute the Application and Loan Agreement for the Program.

vi) Borrower must have a U.S. address and possess a U.S. Social Security number.

vii) Borrowers must successfully meet OFAC (Office of Foreign Asset Control) screening requirements. Access Group will perform the name verification check that is outlined in the OFAC procedure in Addendum C.

viii) Borrower must meet the Borrower credit criteria (detailed in section 6 of this document) of the Program.

b) PEAKS Private Student Loan School Eligibility

All Title IV eligible ITT ESI Schools located in the United States and its territories are eligible to participate in the PEAKS Private Student Loan Program.

4) Loan Period

Individual Borrowers may request funds for prior and current Loan Periods at the same time. In these situations a single Application and, if approved, a single Loan will be made. In the event that the proceeds of a Loan will be utilized to refinance amounts due with respect to a prior academic year or portion thereof and a current or upcoming academic year or portion thereof, the “Enrollment Period” field on the Loan Application and the “Loan Period” field on the School Certification should be completed with the current or upcoming academic year or portion thereof.

5) Application Overview

This section contains an overview of the loan process. Further detail is found in subsequent sections of this document. Any changes to the following forms, or the method or timing of their completion, must be approved by the Originating Lender prior to implementation:

• Application

Page 4 of 29

• Loan Agreement

• School Certification

• Truth In Lending Disclosure Statements

• Adverse Action Letters

The Application process will be hosted by the Access Group Loan Servicing Website.

Borrowers will submit completed applications to the Originating Lender using the Access Group website and will sign the Application and Loan Agreement electronically. A paper application process is not contemplated. All documentation that is sent to Program Applicants after receipt of the Application and Loan Agreement will be sent by Access Group to the Program Applicants by mail or electronically to the extent permitted by law.

Access Group on behalf of the Originating Lender will attempt to obtain a credit report for all Program applicants and underwrite the loan application. The credit report, or the notification from the credit bureau that a credit report does not exist, will be maintained in the Application file.

The Borrower will be notified of credit approval within 30 days based on the Borrower Credit Criteria outlined below, or an adverse action notice will be sent within 30 days, as required by applicable law.

Applicant will receive communications regarding any incomplete application status. Within 30 days of the Application date a letter will be sent to the Borrower notifying the Borrower of the incomplete status and indicating that the Loan will be declined for incomplete information if the required information is not provided within 120 days of the date Access Group completed the credit review process.

A FICO credit score for each applicant will be requested; the credit score will be maintained as part of the application file and used to assign each application a pricing tier.

The Originating Lender will disburse loan proceeds in accordance with the Origination Agreement and will provide interim Truth In Lending Disclosure statements to each borrower at the time of the first disbursement. The interim Truth in Lending Disclosure statement required fields will be calculated using methods approved by the Originating Lender. The Originating Lender’s Privacy policy, attached as Addendum E, will be mailed to borrower with the interim Truth In Lending Disclosure statement.

Once disbursed, the loan will be transferred to a loan servicing system and borrower documentation will be maintained as provided in these guidelines.

6) Borrower Credit Criteria

Applicants must either

a) Meet the following credit criteria, based upon information contained in the credit report:

i. No filed bankruptcy, discharged bankruptcy or foreclosure within 24 months before the Loan Application date, and

ii. No judgments, charge-offs, collections, liens, or repossessions in an aggregate amount of more than $2,500.00 excluding medical related accounts, within 24 months before the Loan Application date, and

iii. No record of a student loan default, unless the default has been paid in full.

Page 5 of 29

or

b) Have been extended credit through the School “Temporary Credit” Program and have not had a filed or discharged bankruptcy within the 24 months preceding the Loan Application date, based upon information contained in the credit report.

i. School will provide a file identifying all Temporary Credit recipients.

ii. Access Group will use this information to review all applications that would otherwise be denied for any denial reason, except for bankruptcy, outlined by section a) above within 5 Business Days.

or

c) Have no credit history with the credit bureau.

An approved credit decision expires if the Loan is not first funded within 120 days from the date the credit decision was made. If the Loan isn’t funded within 120 days, Access Group will send an adverse action notification to the borrower. If the applicant desires to complete the loan, a new Application must be created.

7) Credit Decision Appeals

• The applicant may appeal a denied credit decision through written correspondence, according to the Reconsideration Policy and Procedures attached as Addendum D.

8) Terms and Conditions of Loans

Table of PEAKS Private Student Loan Borrower Pricing Tiers

Pricing for each loan is based on the Borrower’s FICO score*:

Tier	AGI Tier Code	FICO Score	Interest Rate Margin	Origination Fee
1	600	790+	+ 1.5%	0%
2	601	720-789	+2.5%	2%
3	602	680-719	+5%	3%
4	603	650-679	+7%	5%
5	604	600-649	+8%	7%
6	605	No credit score	+ 9%	8%
7	606	599 and below	+ 11.5%	10%

* Eligible Borrowers with an Experian/Fair Isaac Score Code of 9002 or 9003 will be priced as if part of tier 6 (“no credit score”)

Interest Rate – Refer to Section 13.

Origination Fee – An Origination Fee will be added to a Loan at disbursement. This fee will be non-refundable except in cases of certain loan cancellation or refunds as described in Section 12. The applicable Origination Fee will be calculated on the Disbursed Amount and capitalized.

Page 6 of 29

9) Loan Limits

Borrower Loan Limits

i) The minimum amount for each Loan is one thousand dollars ($1,000.00).

ii) The maximum annual Loan amount is equal to the cost of attendance less financial aid for the applicable Loan Period(s) as certified by each ITT ESI School.

iii) No aggregate or annual maximum limits will be enforced by the Access Group.

iv) Aggregate limits are set by degree level and are enforced by each ITT ESI School.

(1) Associate degree programs: $35,000

(2) Bachelors degree programs: $60,000

(3) Graduate degree programs: $25,000

(4) Maximum undergraduate (associate and bachelor degree programs combined) : $60,000

(5) Maximum total of all programs : $85,000

The Origination Fee is not included in determination of the minimum and maximum loan limits.

10) School Certification

The PEAKS Loan requires School Certification. This School Certification must be provided by financial aid personnel at the applicable ITT ESI School or the School, using the Access Group web certification tool.

11) Funds Disbursement

Access Group will direct the Originating Lender to send Disbursement amounts to the School or for the account of the School via direct electronic funds transfer as provided in the Origination Agreement.

School will credit student accounts for the Disbursed Amount (which excludes the Origination Fee).

Disbursements will be scheduled in accordance with each ITT ESI School certification. Each Loan can have a maximum of four (4) disbursements. The ITT ESI School will choose the dates and disbursement amounts that best fit its needs and complies with applicable state law, as long as the first disbursement will occur at least nine (9) days after the School has certified the Loan.

If a disbursement is requested for a day on which Access Group or the Originating Lender is closed, the next available disbursement date will be used.

Access Group will determine which loans will be postponed in the event daily Disbursement volume exceeds the daily Reserve Fund balance as required by the Origination Agreement. A postponed loan Disbursement priority will be set by the date of the certification by the ITT ESI School (First In First Out priority). Any individual Disbursement that is postponed must be postponed in its entirety, and will not be partially disbursed.

Truth in Lending disclosures will be produced and sent at the time of the first disbursement.

12) Return of Loan Proceeds

The “Gross Refund Amount” of a Loan as used in these Guidelines means the portion of the Disbursed Amount on a Loan that is being credited to the Borrower’s Loan account in accordance

Page 7 of 29

with this Section. This section only applies to refunds and cancellations received from the ITT ESI School or the School. If funds are received from the Borrower directly, those funds will be processed as a pre-payment on the Borrower’s Loan and Origination Fees and accrued interest will not be refunded or waived.

If a cancellation or refund on a Loan is to be made after the Loan has been sold to the Trust by the Originating Lender:

• The School will remit 72% of the Gross Refund Amount to First Associates, and will communicate to First Associates what the Gross Refund Amount with respect to that Loan is;

• First Associates will credit the Borrower’s Loan account with 100% of the Gross Refund Amount;

• First Associates will remit the 72% of the Gross Refund Amount that it received from the School to the Trust; and

• The Trust will credit the subordinated note held by the School with an amount equal to 28% of the Gross Refund Amount.

If a cancellation or refund on a Loan is to be made before the Loan is sold by the Originating Lender to the Trust, or after the Loan has been sold to the Access Group:

• The School will remit 72% of the Gross Refund Amount to First Associates, and will communicate to First Associates what the Gross Refund Amount with respect to that Loan is;

• First Associates will credit the Borrower’s Loan account with 100% of the Gross Refund Amount;

• First Associates will request an amount equal to 28% of the Gross Refund Amount from the Trust;

• The Trust will remit an amount equal to 28% of the Gross Refund Amount to First Associates on behalf of the School, and will credit the subordinated note held by the School with an amount equal to 28% of the Gross Refund Amount; and

• First Associates will remit 100% of the Gross Refund Amount to the Originating Lender, unless the loan has been sold to Access Group in which case Access Group will retain 100% of the Gross Refund Amount to Access Group.

In all events, if Access Group receives a check or electronic funds transfer from the School and/or an account of the School related to a cancellation or refund of a Loan:

• If the cancellation or refund proceeds are received within 60 days of the Disbursement date:

• If the Gross Refund Amount equals the Disbursed Amount, then related fees and interest will be waived by the Originating Lender and credited in full to the Borrower’s account; and

• If the Gross Refund Amount is less than the Disbursed Amount, then the related fees and interest will be waived by the Originating Lender and credited on a pro-rata basis to the Borrower’s account.

• If the cancellation or refund proceeds are received later than the 60^th day after the Disbursement date, then no fees or interest will be waived or credited to the Borrower’s account.

In all events, Access Group will communicate all cancellation information to the appropriate parties including the Administrator. The Originating Lender will calculate the adjustments to the fee remittance required by the Origination Agreement. Premiums and Fees on any canceled or refunded Loan will be refunded as provided in the Origination Agreement.

Page 8 of 29

13) Interest Rate

a) Accrual – Interest will accrue at the Variable Rate (as defined below) on the principal amount of each Loan outstanding.

b) Interest will be calculated on a daily simple interest basis, according to the outstanding principal balance each day of the term of the Loan. The daily interest rate will be equal to the annual interest rate in effect on that day, divided by 365.25 days and will not vary for leap years.

c) Variable Rate – The Variable Rate will be equal to the “Index” (defined below), rounded up to the nearest one-eighth of one percent (0.125%) plus a Margin assigned to the Loan based on the borrower’s FICO credit score as described in Section 8 up to a maximum of 25%.

d) The Variable Rate may change, effective on the first day of any month, if the Index changes. The “Index” for any month is the U.S. Prime Rate, as published by The Wall Street Journal on the seventeenth (17^th) day of the immediately preceding month, or if The Wall Street Journal is not published on the seventeenth (17^th) day of the immediately preceding month, then the next day on which it is published. If The Wall Street Journal is no longer published, the loan holder will find an alternate source for the Index. If the Index is no longer available, the loan holder will choose a comparable Index.

e) Changes in the Variable Rate will be communicated to the Borrower consistent with federal and state regulatory requirements.

f) The Servicemembers Civil Relief Act (The Act) requires consumer lenders to reduce the interest rate to 6% on any Loan to a Borrower who is called to Active Duty if the Loan was disbursed prior to the Borrower being called to Active Duty. In order for the Borrower to be eligible, the Servicer must receive proof of military mobilization or a call to active duty (i.e.: a copy of his/her military orders) with a beginning date after the date of the first Disbursement of the Loan. If no end date to the Active Duty is provided in the documentation, the military website will be queried on a quarterly basis to determine if the Borrower is still on Active Duty. The reduced interest rate will end when the Borrower is no longer on Active Duty.

LOAN SERVICING

14) Loan File Documentation

The following documents will comprise the Loan File. These may be electronic or imaged paper documents.

a) The fully-completed Application and Loan Agreement, dated and electronically signed by the borrower.

Page 9 of 29

b) The consumer reporting agency record on the borrower, if any, obtained in the loan application process and any updated consumer reporting agency records.

c) Evidence of communicating application underwriting decision to applicant.

d) If applicable, documentary evidence that an exception was made in accordance with these Program Guidelines.

e) ITT ESI School Certification (which is also used for verification of enrollment).

f) Evidence of disbursement activity.

g) The Regulation Z disclosure statement (both interim and repayment).

h) The Loan history, maintained by the Servicer in its normal course of business, of payments made on the Loan.

i) The documentary evidence of the Servicer’s efforts to affect a cure of any delinquency or default and to collect the Loan.

j) Material customer correspondence.

k) First Associates and Access Group will each maintain the loan file documentation according to its record retention schedule.

15) Capitalization of Interest

Accrued and unpaid interest will be added to the principal balance (capitalized) on the first day of each month during the Interim Period and during any period of Forbearance, excluding Administrative Forbearance and during the Modified Graduated Repayment Schedule (MGRS).

Any remaining accrued unpaid interest will be capitalized at the end of the Interim or Forbearance period, excluding Administrative Forbearance, and also at the end of each step of MGRS as described in Section 16 (h) (i)-(iv).

16) Repayment Terms

From a processing perspective, Interim Period is the in-school period plus the grace period.

(a) The Interim Period begins on the date of the first disbursement of the Borrower’s first PEAKS Private Student Loan, continues while the Borrower is continuously enrolled at an ITT ESI School on at least a half-time basis, based on the ITT ESI School criteria (“In School Status”), and ends on the earliest of:

i) the date that is six months (grace period) after the borrower graduates, unless the borrower enrolls in another program at an ITT ESI School at least half-time; or

ii) the date that is three months (grace period) after the borrower ceases to be enrolled at least half-time for any reason other than graduation unless the borrower enrolls in another program at an ITT ESI School at least half-time; or

iii) the date that is 48 months after the first disbursement of the Borrower’s first PEAKS Private Student Loan.

Any payments received from the Borrower during the Interim Period will be applied first to the accrued interest and then principal.

Page 10 of 29

(b) Entry into Repayment

If a Borrower has not yet exhausted the Interim Period for one or more PEAKS Private Student Loans and subsequently re-enrolls in an ITT ESI School on at least a half-time basis, whether or not the Borrower obtains another PEAKS Loan, the Borrower will return to an in-school status and all of the Borrower’s Loans will enter Repayment together at the earliest of the Interim Period end dates outlined in section 16(a).

i) In order to continue in an In-School status, the enrollment of the Borrower on at least a half-time basis must be confirmed by the Servicer through the Clearinghouse or the Borrower must provide evidence of enrollment during the academic period in the form of a letter or other documentation from an appropriate official of the ITT ESI School.

ii) Once a Borrower has exhausted the Interim Period, the following conditions apply:

• PEAKS borrowers who transfer to another ITT ESI School within 48 months from the date of the first disbursement of their first PEAKS Loan will be eligible for an in-school forbearance on all of their PEAKS Private Student Loans as described in Section 18.c.

• PEAKS borrowers who transfer to an institution other than an ITT ESI School are not eligible for an in-school forbearance on their PEAKS Private Student Loans. Their Loans must remain in Repayment Status.

First Associates is responsible for monitoring the Clearinghouse and updating all Borrower enrollment status information to ensure it correctly applies all Interim Periods and In School Forbearance periods. Such monitoring will be conducted on at least a monthly basis and updates applied as applicable.

The following additional repayment terms apply to the PEAKS Loan.

(a) Once the loan enters into Repayment Status, the repayment term is up to 10 years (120 months) which will be extended by any periods of Forbearance.

(b) The combined monthly payment on all of a Borrower’s PEAKS Loans will be at least $50 each month or the unpaid balance, whichever is less.

(c) Payments must be made in U.S. dollars drawn on a U.S. bank.

(d) No penalty for prepayment

(e) The Servicer may collect a late charge of $10.00, for any part of any installment payment, other than late charges assessed on a prior monthly payment, which is not paid in full within fifteen days after the payment due date.

(f) Any amount paid in excess of the monthly payment amount will be applied to future payments unless the Borrower specifically requests the excess amount be applied to the principal balance. The due date will be automatically advanced. If the amount paid in excess is not a multiple of the monthly payment, the next monthly payment will remain due at a lesser amount, reduced by the excess amount paid, on the following month’s due date. Borrower requests to have excess payments applied to the principal balance will be granted by the Servicer.

(g) Standard Repayment

“Easy Pay Equal” Repayment plan – the standard repayment plan, requires monthly payments of both principal and interest. This amount is recalculated quarterly to determine whether the payment amount should increase or decrease based on interest rate changes, lump sum payments, periods of Forbearance, capitalization of interest, etc. to ensure the Loan is repaid

Page 11 of 29

within the remaining Repayment period. If the monthly installment payment amount is recalculated and the recalculated payment amount would differ by 2.0% or less from the monthly installment payment last in effect, the repayment amount will remain unchanged.

(h) The other repayment schedule, available upon the approval of the servicer on behalf of the loan holder, is:

Modified Graduated Repayment Schedule - With this repayment plan, the Borrower will:

i. Pay 50% of the standard monthly payment for the first six months.

ii. Pay 75% of the standard monthly payment for the second six months.

iii. Pay interest only for the second year.

iv. After two years, return to making standard monthly payments.

v. Unpaid accrued interest will be capitalized monthly.

PLEASE NOTE: MGRS is only offered once over the life of the loan and is a collections tool used during the delinquency phase. It is not a standard re-payment plan.

(i) Auto-debit payments (ACH) and interest rate discount – Borrowers who authorize First Associates to automatically withdraw their monthly loan payments from their checking or savings account automatically qualify for an interest rate discount of 0.25% on all of their PEAKS Loans.

This interest rate reduction will permanently terminate the first time a payment is returned or declined for any reason (unless the reason is due to an error outside the control or responsibility of the Borrower).

After the first return or decline of an automated payment, the Borrower can continue to make payments using the auto-debit electronic transfer method until they provide the Servicer with instructions to cancel the service or until a second incidence of a return or decline of an automated payment occurs for any reason (unless the reason is due to an error outside the control or responsibility of the Borrower), at which time the auto-debit electronic transfer method is terminated for the Borrower’s account. If the Borrower subsequently makes twelve (12) consecutive monthly payments on time and in full, the Borrower may then request the Servicer to resume automatic debit payments.

If the Borrower enters any type of Forbearance, the auto-debit payment plan and the associated interest rate reduction are simultaneously suspended until the Borrower re-establishes automatic payments, at which point the interest rate reduction resumes.

Borrowers who enter a Modified Graduated Repayment Schedule repayment plan are allowed to continue using the auto-debit payment method and do not forfeit the associated interest rate discount as long as no payment is returned or declined.

To activate this interest rate reduction the first time or following any suspension during a forbearance period, the Borrower must contact First Associates and submit the required request form.

Each Borrower will be sent information about this feature at least 30 days prior to the end of the Borrower’s Interim Period.

17) Account Billing

Borrowers in Repayment will be billed on a monthly basis. The billing statements will be sent at least 15 days before the due date. Payments will be processed and posted to the Borrower’s account

Page 12 of 29

effective the date the payment was received. Payments will be applied so that accrued and unpaid interest and any other fees or charges (e.g., collections charges) are satisfied before outstanding principal is reduced.

18) Available Forbearances

The following Forbearances are available at the discretion of the Servicer on behalf of the loan holder. Any months that a Loan is in a period of Forbearance will correspondingly extend the Repayment Period.

(a) Economic Hardship Forbearance – This Forbearance may be granted in increments of up to three months, for periods that collectively do not exceed twelve months over the life of the loan. This Forbearance may be used retroactively to cover periods of delinquency. The Borrower must request an Economic Hardship Forbearance. The request may be made either over the phone or by using the applicable Forbearance request form. Documentation of income or expenses is not required.

(b) Administrative Forbearance – This Forbearance may be granted to cover borrower periods of delinquency arising from interruptions in payment notification, billing, or other delays not caused by the Borrower.

(c) In School Forbearance – This Forbearance will be granted in increments of up to one year (12 months), for periods that do not extend beyond four years (48 months) from the date of the first disbursement of the Borrower’s first PEAKS Loan. The Borrower must be enrolled on at least a half-time basis (as defined by the School) at an ITT ESI School. To qualify for such Forbearance, the Servicer may rely on Clearinghouse data without request from the Borrower, or the Borrower must provide evidence of enrollment during each academic period in the form of a letter or other documentation from an appropriate official of such institution.

(d) U.S. Military Mobilization Forbearance – This Forbearance will be granted on Loans for Borrowers who are U.S. military personnel and who are activated or reassigned to Active Duty for a period of more than 30 days as a result of a military mobilization. Borrowers can use up to 12 months of U.S. Military Mobilization Administrative Forbearance on all private loans. The request may be made either over the phone or in writing. In order to be eligible, the Servicer must receive proof of military mobilization or a call to Active Duty (i.e.: a copy of the Borrower’s military orders).

(e) Discretionary Administrative Forbearance- This forbearance may be granted in increments up to three months, for periods that collectively do not exceed twelve months over the life of the loan. This forbearance may be used to retroactively cover periods of delinquency that arise from borrowers who are in an in school status but have exhausted their 3 month grace period. The Servicer may proactively apply this forbearance.

19) Making Demographic Changes

Customer demographic changes should be made to the appropriate operating systems in a timely manner. Demographic change requests may be oral, written, via returned mail, or other official sources. Permitted changes include Borrower addresses, phone numbers, references, and other pertinent information that would allow the customer record to remain accurate. First Associates reserves the right to request supporting documentation from the Borrower for any demographic change.

Page 13 of 29

20) Reporting Loans to Consumer Credit Reporting Agencies

a) The Servicer will report the status of all Loans (other than Defaulted Loans) on a monthly basis to three of the national consumer credit reporting agencies. Loans that are “current” and those that are 59 days or less past due as of the end of a calendar month will be reported as “current.” Loans that are 60 days or more past due as of the end of a calendar month and have not defaulted will be reported based on the appropriate delinquency status.

Once a loan has defaulted, that event will be reported and no further reporting will occur because the reporting of recoveries on defaulted accounts will be reported by the collection agency performing recovery activities for that Loan.

Loans in Forbearance status will be reported as such.

b) The Servicer will comply with the regulatory requirements that govern consumer credit agency reporting. The Servicer will attempt to resolve any credit reporting disputes raised by the Borrower.

21) Financial Activity Reporting

The Servicer will provide the monthly reports identified in the Servicing Agreement and the Administration Agreement.

22) Collection and Default Activities and Due Diligence

The Servicer is responsible for complying with all applicable federal and state laws while enforcing default and collection procedures.

a) Delinquent means the failure by a Borrower to pay when due a non-accelerated scheduled periodic payment due under the terms of the Loan. Delinquent does not mean the violation by a Borrower of any other term or condition of the Loan. A Loan is deemed to be delinquent (or in delinquency) as of the close of business on the installment due date for which a scheduled periodic payment has not been made in full or within 10% of the amount due, but not more than $5.00 less than the amount due. The first day of delinquency is the day following the payment due date. A Loan will continue to age or remain delinquent from that point until payment in full is made or other payment arrangements are enacted. Once a Loan becomes delinquent, the delinquency may also be referred to as “days past due.”

b) Default means:

i) For any Loan owned by the Originating Lender or any institution subject to regulations promulgated by the Federal Financial Institutions Examination Council or its member regulatory agencies: a Loan that is one hundred twenty (120) days delinquent. A Loan is deemed to be 120 days delinquent and is declared to be in default when the Borrower fails to make the scheduled periodic payments in full when due or has failed to comply with other approved written payment agreements and the Loan ages to 120 days past due, or because of the Borrower’s death.

ii) When ownership is by other than an entity described in (i) above: a Loan that is one hundred eighty (180) days delinquent. A Loan is deemed to be 180 days delinquent and is declared to be in default when the Borrower fails to make the scheduled periodic payments in full when due or has failed to comply with other approved written payment agreements and the Loan ages to 180 days past due, or because of the Borrower’s death.

Page 14 of 29

c) Due Diligence is the group of activities that are performed during attempts to collect the Loan from the Borrower.

d) Skip Trace is the group of activities that are performed to locate a Borrower the Servicer is unable to contact using the Borrower information contained in the current loan record, such as when the address is determined to be invalid (address skips) or the telephone number is determined to be invalid (telephone skips).

i) Activities in the attempt to locate the Borrower will be documented in the account history and any documentation related to the efforts will become a part of the Loan File.

ii) The purpose of skip tracing is to obtain the necessary contact information to resume normal Due Diligence processes. Skip Trace activities will be considered complete when the Servicer has obtained a valid address (address skip) or telephone number (telephone skip) or has performed each of these activities:

(1) Attempted to contact the Borrower to obtain a new address or telephone number for the Borrower.

(2) Attempted to contact all references listed on the Loan application to obtain a new address or telephone number for the Borrower.

(3) Contacted the ITT ESI School for updated borrower contact information, if the ITT ESI School permits its release.

iii) When Skip Trace activities are complete and the process has not resulted in a new address or telephone number, no further Due Diligence activities can be performed by Servicer.

e) Due Diligence Schedule of Letters and Notices

i) When Default occurs at 120 days, the Servicer will send increasingly forceful collection letters and/or electronic communications no less frequently than the 10^th, 20^th, 40^th, 70^th, and 90^th days of delinquency to the Borrower. When Default occurs at 180 days, the Servicer will send increasingly forceful collection letters no less frequently than the 10^th, 20^th, 40^th, 70^th, 90^th, 120^th, and 150^th days of delinquency to the Borrower. The collection letters must be sent out on a timely basis, with a tolerance for error of plus or minus 5 business days.

ii) The letter and/or electronic communication sent on the 90^th day of delinquency for 120-day Defaults or on the 150^th day for 180-day Defaults will be a final Demand Letter which demands the full amount past due.

iii) At the 120^th day of delinquency for 120-day Defaults or at the 180^th day for 180-day Defaults, the Servicer will send a Notice of Default, which informs the Borrower that the Loan is in default and may be turned over to a collection agency. The Notice of Default must be sent out on a timely basis, with a tolerance for error of plus or minus 5 business days.

iv) Servicer may employ postal email and/or electronic communications for all letters and notices.

f) Due Diligence Schedule of Telephone and Letter / E-mail Contact

For purposes of this section the following definitions apply:

“Contact” is defined as a phone conversation directly between the Borrower and a representative from the Servicer or an agency representing the Servicer.

Page 15 of 29

“Attempt” is defined as an approach to try and secure communication with the Borrower. This can be through the telephone, electronic message or physical letter.

During contact with the Borrower, the representative should identify the Loan(s) being discussed and determine the reason for delinquency. The representative should then work with the Borrower to identify the best option available to assist the Borrower

Due Diligence Schedule

Servicer will perform the following actions, unless performance of them would be a violation of any applicable federal or state laws or regulations arising from the assertion of rights by the Borrower.

Diligence Bucket	Actions *
1 to 14 days delinquent	Past-Due Notice
15 to 29 days delinquent	One Contact with borrower or attempts made on at least three separate days
30 to 60 days delinquent	Two Contacts with borrower or attempts made on at least four separate days
61 to 90 days delinquent	Two Contacts with borrower or attempts made on at least four separate days
91 to 120 days delinquent	Two Contacts with borrower or attempts made on at least four separate days
When applicable: 121 to 150 days delinquent	Two Contacts with borrower or attempts made on at least four separate days
When applicable: 151 to 180 days delinquent	Two Contacts with borrower or attempts made on at least four separate days

* The collection telephone calls, letters and/or electronic communications must be conducted on a timely basis, with a tolerance for error of plus or minus 5 business days. Attempts may be made using telephone, email, or letters. During each Diligence Bucket (beginning with the 30 to 60 days delinquent bucket), at least one attempt must be by telephone and at least one attempt by email or letter.

g) Initiation of Skip Trace Activities

The Servicer will perform both address skips and telephone skips. It will initiate skip trace activities when it learns that the mail to the Borrower has been returned as undeliverable or when it learns a telephone number is invalid, and that discovery occurs on or before the 90^th day of delinquency for 120-day Defaults and on or before the 150^th day of delinquency for 180-day Defaults.

h) Recovery Activities on Defaults

The following recovery activities apply if the Servicer has been contracted by the Loan holder to perform such activities.

i) Once a Loan defaults, it is no longer a serviced Loan under the terms of the servicing agreement and the payment of servicing fees on that Loan ceases. To provide for ongoing recovery efforts on defaulted Loans, Servicer will maintain the system of record for tracking the then-current unpaid defaulted Loan balance.

ii) Servicer will assign all defaulted Loans to one or more recovery collection agencies.

Page 16 of 29

iii) Servicer may employ Deutsche Bank or its affiliates to perform collection activities provided Servicer believes the proposed fees are both cost-effective and reasonable in comparison with other potential sources.

iv) Any amounts received from collection agencies will be transferred to the loan holder or Secured Party, if applicable, in an amount calculated in accordance with the Servicing Agreement.

v) Servicer will track collection agency performance and will initially assign and subsequently re-assign defaulted Loan collection agency placements based on collection agency performance when alternative collection agencies are available.

vi) Servicer will make all decisions as to whether to accept or reject partial payments in settlement of the full defaulted Loan balance.

23) Bankruptcy

a) The Servicer will send copies of all documents relating to any bankruptcy proceeding to the owner of the Loan within 15 business days of receipt, and the Servicer will cease all collection activity. Bankruptcy proceeding may include petitions in bankruptcy court and/or correspondence concerning bankruptcy from the Borrower or an attorney representing the Borrower.

b) If the Servicer receives notice that a Borrower files for a Chapter 13 bankruptcy, the Servicer will file a Proof of Claim with the bankruptcy court and cease contact with the Borrower. Once a plan of reorganization is approved, the Servicer will resume activities in accordance with the plan.

c) If the Servicer receives notice that a Borrower files for a Chapter 7 bankruptcy, the Servicer will file a Proof of Claim with the bankruptcy court only if required by the bankruptcy court.

24) Death

a) The Servicer will send copies of all documents relating to any Borrower death to the owner of the Loan within 15 business days of receipt.

b) The Origination Agent will cancel any future disbursements that are dated after receipt of the death certificate.

c) Acceptable documentation of a death is a certified copy or a photocopy of the Death Certificate.

If the Servicer suspects the documentation related to any Borrower death is fraudulent, the Servicer may continue to perform collection/due diligence activities while completing its research and making its determination.

25) Allowable Write-Offs and Refunds

a) Any remaining loan balance of $5.00 or less will automatically be written off during the nightly update to the servicing system.

Page 17 of 29

b) Any remaining loan balance of more than $5.00 but $10.00 or less will be written off 30 days after the balance is reduced to that amount.

c) The Servicer may use its discretion to write-off amounts greater than $10.00 but less than or equal to $100.00. The write-off involves a manual entry.

d) Not including default claim balances, amounts above $100.00 will be referred to the Owner for review and approval/denial. If approved, the write-off will involve a manual entry.

e) Refund amounts less than or equal to $1.00 are written-off within 30 days. Amounts greater than $1.00 are refunded within 45 days.

f) If the borrower has other open program loans serviced by First Associates, providing the borrower did not request otherwise, refund amounts due a borrower equal to $25.00 or less will be applied to the borrower’s other open program loans.

Page 18 of 29

1. Addendum A

CUSTOMER IDENTIFICATION PROGRAM

Access Group, Inc.

For Compliance with Section 326 of the USA PATRIOT Act

Revised April 27, 2009

Page 19 of 29

Table of Contents

Purpose	21
Identity Verification Procedures	21
Customer Information Required	22
Verification Through Documents	23
Non-Documentary Verification	23
Lack of Verification	24
Record Keeping Requirements	24
Comparison with Government Lists	24
Customer Notice	25

Page 20 of 29

Purpose

The purpose of this document is to describe the student loan processing procedures Access Group, Inc. has in place to comply with the Customer Identity Verification Requirements under Section 326 of the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism (USA PATRIOT) Act. Regulations issued by the Department of the Treasury on April 30, 2003 require banks to develop a Customer Identification Program (CIP) that implements reasonable procedures relative to the core concepts of Section 326: (1) collection of identifying information about customers opening an account, (2) verifying that the customers are who they say they are, (3) maintaining records of the information used to verify their identity, and (4) determining whether the customer appears on any list of suspected terrorists or terrorist organizations. Customer Identification Programs must be in place for banks by October 2003.

This Customer Identification Program has been created because: (a) Section 326 of the USA PATRIOT Act currently applies to Access Group; (b) the Department of the Treasury has indicated that separate regulations regarding Section 326 are forthcoming with respect to non-bank financial institutions and are expected to closely track the bank regulations; and (c) The Originating Lender has requested that, as origination agent for them, we share with them our Customer Identification Program.

Access Group and the Federal Family Education Loan Program (FFELP) have controls in place that mitigate the risk of providing student loans to persons for terrorist purposes. These controls have been examined in light of the CIP requirements and are described within this document. Loan processing procedures reflect the steps taken to verify identity, including what information needs to be collected and reviewed, time frames for the review and positive identification of customers, and escalation procedures for problems and discrepancies found. In consultation with the Compliance Department, the Operations processing areas will train employees on any changes that occur because of the requirements imposed by the USA PATRIOT Act as well as other statutes and regulations governing student loan processing.

Access Group has a Director of Compliance whose responsibility it is to document the CIP and monitor the company’s compliance with the CIP requirements, and to include the requirements of the Act in the company’s internal compliance audit function.

Identity Verification Procedures

§103.121(b)(2) –

The CIP must contain risk-based procedures for verifying the identity of each customer to the extent reasonable and practicable. The procedures must be based upon relevant risks such as the types of accounts being opened, the various methods of opening accounts, and the types of identifying information available, as well as the company’s size and the type of customer base.

How Access Group meets the compliance requirement

Access Group believes that most of the FFELP and Private loans offered to borrowers pose little risk of fraudulent use for the following reasons:

• Except as noted below, the school certifies the student’s eligibility for a loan and his/her enrollment status, giving us a reasonable belief that it knows the true identity of the customer.

• In most cases, loan funds are delivered directly to the school’s financial aid department via check or electronic funds transfer.

• Stafford loans are made payable to the student or co-payable to the student and the school. PLUS loan funds disbursed by individual check must be made co-payable to the borrower and the school.

• The school applies the loan funds to unpaid educational expenses actually incurred by the student.

Page 21 of 29

• Because loan funds are only disbursed for school related expenses, a potential identity thief would have to enroll in school, certify the loan, and create the appearance of attending classes in order to obtain loan proceeds.

• For Stafford and PLUS Loans, the Title IV loan refund process provides a final safeguard against the misuse of student loan funds. For students who withdraw from school within a short time of enrollment, the school must calculate and return to the lender a refund of loan funds based on a percentage of the term enrolled. In most cases, depending on when the student withdraws from school, refunds are sent from the school directly to the originator of the loan rather than to the student. So, even a student with the intent to receive the money personally by withdrawing immediately from school is typically not able to do so.

• For Access Group PLUS and private loans that require a cosigner, sponsor, or endorser, funds are delivered to the school on behalf of the student, thereby mitigating the risk that the funds could be used for terrorist purposes by the loan cosigner or sponsor.

• Access Group PLUS and private loans require a credit bureau report that is used to determine the borrower’s credit eligibility and the pricing of the private loans. The credit bureau report is considered an additional source of identity verification. For some of the loans, however, borrowers who have not established a credit history can still qualify for loan funds, and in the case of the student recipient of sponsor loan funds, no credit check is done on the student. In these cases, we rely on the school certification process in order to verify the borrower’s identity and on the funds disbursement process to ensure that the loan funds are delivered to the school.

• The Access Group REL and DEL loans present a greater risk for the misuse of funds because the funds are delivered directly to the student, the school is not required to certify a borrower’s eligibility, and REL and DEL borrowers do not need to be previous Access Group borrowers. To help mitigate this risk, Access Group has implemented additional identity verification requirements.

• For BEL loans, borrowers receive the funds directly and they do not need to be previous Access Group borrowers. In these instances Access Group relies on the school certification process and the credit approval process in order to verify the borrower’s identity. Statistically, there are an insignificant number of BEL loans with no credit history.

• For federal Consolidation Loans, the risk is even lower since this loan is actually a refinancing of other eligible federal loans and the borrower is the recipient of a new payment schedule, not loan proceeds.

• The Treasury regulations allow an exception to the identification requirements for existing customers (returning borrowers) who have loans with Access Group prior to October 1, 2003. Access Group, however, applies the identification requirements to all customers in order to even further mitigate the risk.

• Access Group routinely purchases private loans from Lenders through a contractual arrangement. Identity verification for these loans is not necessary at the time of purchase; Access Group has already performed identity verification for these loans on behalf of The Originating Lender during the origination process.

• Students studying abroad at an eligible foreign school in a program of study that is approved by the home institution must have their enrollment verified by the school before loan proceeds are disbursed. In some cases, the student may request to have the funds disbursed directly to him or her, however, the school must certify the student’s enrollment. The foreign school is notified that the funds were sent directly to the borrower.

Customer Information Required

§103.121(b)(2)(i) –

The minimum information that a bank must obtain from each customer prior to opening an account is as follows: (1) name; (2) street address (residential and mailing addresses); (3) date of birth; (4) an identification number.

Page 22 of 29

How Access Group meets the compliance requirement

• The borrower’s name, date of birth, permanent address, and Social Security Number is collected on all loan application forms. Additionally, a mailing address is requested for REL, DEL, and BEL applicants. For federal Stafford and PLUS loan borrowers, the mandated Master Promissory Note (MPN) collects this data and the mandated federal Consolidation Loan application/promissory note is the data collection instrument for the Consolidation Loan. Instructions on the form ask specifically for a permanent home street address and indicate that a temporary street address is not acceptable. The same information is required of Access Group private loan borrowers, cosigners and sponsors on the private loan application and promissory note.

• For collecting the identification number, Access Group requires citizens to provide their Social Security Number on the loan application forms. Eligible non-citizens seeking federal aid provide their alien registration number during the FAFSA application process. For Access Group private loan borrowers who are international students, a copy of the passport showing country of origin is required. Cosigners and sponsors must be citizens in order to qualify for private loan funds.

Verification Through Documents

§103.121(b)(2)(ii)(A) –

The CIP must include procedures describing when the bank will verify identity through documents and setting forth the documents that are to be used for this purpose.

How Access Group meets the compliance requirement

As stated above, Access Group requires a copy of the passport showing country of origin for all international loan applicants.

Additionally, if discrepancies are noted in the primary identifying fields (Name, address, etc.) between the loan application and the credit bureau report, Access Group may require the applicant to submit documentary evidence to resolve the discrepancy.

Non-Documentary Verification

§103.121(b)(2)(ii)(B) –

The CIP must include procedures describing what non-documentary methods are being used to verify identity and when these methods will be used.

How Access Group meets the compliance requirement

• Access Group considers the required certification of the borrower’s eligibility by the school to be non-documentary verification of the borrower’s identity by a trusted third party. The school certifies all private loans, with the exception of the REL and DEL, and all federal loans.

• An address comparison is performed for all REL and DEL applicants. If the address provided on the loan application does not match the address on the credit bureau report, then additional steps are taken to verify the mailing address. If the mailing address cannot be verified through non-documentary means (such as directory assistance or www.usps.com), the applicant is contacted and asked to provide acceptable documentation of proof of residence.

• If significant discrepancies are discovered in the borrower’s name, address, or Social Security Number during the credit quality control process, Access Group will compare and verify information.

Page 23 of 29

• As part of the normal processing procedures, we reconcile loan disbursement information with each school for each borrower. This is one way of ensuring that loan funds are being used for educational purposes.

• The U.S. Department of Education data match process against the Social Security Administration (SSA) and the Immigration and Naturalization Service (INS) databases verifies the identity of each Stafford and PLUS Loan borrower.

• Loan funds are released after the school has certified the borrower’s eligibility and has resolved discrepancies with the SSA and INS matches.

• Schools also need to match enrollment records of foreign students, regardless of financial aid applications, against the INS database at the time the student enrolls.

Lack of Verification

§103.121(b)(2)(iii) –

The CIP must include procedures for responding to circumstances in which the bank cannot form a reasonable belief that it knows the true identity of a customer.

How Access Group meets the compliance requirement

If the borrower, cosigner, sponsor, or endorser (whenever applicable), does not submit the requested documents for identity verification, we will decline making the loan and notate the reason on the system as “failure to submit proof of identity.”

Record Keeping Requirements

§103.121(b)(3)(i) and (ii)

The CIP must include procedures for making and maintaining a record of all information obtained under the procedures implementing the minimum identity verification requirements of the CIP. Records must be kept for five years after the date the account is closed or becomes dormant.

How Access Group meets the compliance requirement

• Access Group retains all borrower origination and disbursement records for all borrowers. The documentation used to verify borrower identity is scanned and imaged. Additionally, a note is placed on the borrower’s account using a memo feature to indicate the type of documentation collected.

• If there is a discrepancy in any of the identification materials submitted by a loan applicant, the processing area will require new documentation be submitted, and retain in the memo feature a description of the steps taken to resolve it.

Comparison with Government Lists

§103.121(b)(4) –

The CIP must include procedures for determining whether the applicant is on any list of known or suspected terrorists or terrorist organizations issued by any federal government agency and designated as such by Treasury in consultation with federal functional regulators.

How Access Group meets the compliance requirement

• Access Group currently compares international loan applicants who pass the established credit criteria to the Treasury’s Specially Designated Nationals and Blocked Persons (SDN) list.

• Access Group performs a name-based OFAC check on every federal loan applicant and on all private loan applicants who pass the established credit criteria.

Page 24 of 29

Customer Notice

§103.121(b)(5) –

The CIP must include procedures for providing customers with adequate notice that the bank is requesting information to verify their identity. The notice must generally describe the verification requirements and be given in a manner reasonably designed to ensure the customer views or receives the notice before opening an account.

How Access Group meets the compliance requirement

• The “Instruction and Notices” page included with each FFELP Stafford and PLUS MPN contains sufficient notice that information is collected for identity verification and anti-fraud purposes.

“The principal purposes for collecting the information on this form, including your SSN, are to verify your identity, to determine your eligibility to receive a loan or a benefit on a loan (such as a deferment, Forbearance, discharge or forgiveness) under the FFELP, to permit the servicing of your loan(s), and, if it becomes necessary, to locate you and to collect on your loan(s), if your loan(s) become delinquent or in default. We also use your SSN as an account identifier and to permit you to access your account information electronically.”

• The Application and Loan Agreement for private loans contains the following notice:

IMPORTANT INFORMATION ABOUT PROCEDURES FOR OPENING A NEW ACCOUNT To help the government fight the funding of terrorism and money laundering activities, Federal law requires all financial institutions to obtain, verify, and record information that identifies each person who opens an account. What this means for you: When you open an account, we will ask for your name, address, date of birth, and other information that will allow us to identify you. We may also ask to see your driver’s license or other identifying documents.

Page 25 of 29

Addendum B

Dictionary of Defined Terms

Term	Definition
Account	Refers to each Loan approved per application.
Active Duty	As defined in the Servicemembers Civil Relief Act.
Application	The electronic process or document used to collect data from the Applicant (i.e., name, address, Social Security number, date of birth, school information, etc.) to initiate a request for a Loan.
Borrower	The person who applies for and receives the benefit of the education loan.
Clearinghouse	The National Student Clearinghouse, a non-profit organization headquartered in Herndon, Virginia, or its successors.
Collection	The actions taken by a Lender or Servicer to collect payments due from the Borrower.
Disbursements	The transfer of Loan funds from the Originating Lender via Electronic Funds Transfer (EFT) for the benefit of the borrower.
Full Payment	A payment that is within 10% of the amount due but not more than $5.00 less than the amount due.
Loan	A consummated Application and Loan Agreement that is evidenced by a disbursement and has been signed by the Borrower.
Loan Agreement	The document that is incorporated by reference into the Application that has been signed by the Borrower containing the terms of the Loan.
Loan Period	The academic year or portion thereof for which the applicant is enrolled and is seeking a loan.
Servicer	First Associates.

Page 26 of 29

Addendum C

OFAC Procedure

OFAC Hit

Steps: 1.      When an application is initiated, the applicant’s name is automatically checked against the OFAC database for a match.  When there is no match, the application continues processing in a normal fashion.   2.      If name is a match, the information required by the Customer Information Program (found in Addendum A) is collected  by Origination Agent.   3.      Following completion of Step 2, the application is forwarded to the Servicer’s Originations and Disbursement Manager.   a.      The Originations and Disbursement Manager will re-verify the match and if applicable, contact OFAC’s “hotline” at 1-800-540-6322 for verification.   b.      If OFAC confirms a true hit, there are additional reporting requirements that are required to be in compliance.   c.      If OFAC confirms a true hit, the Originations and Disbursement Manager will also contact Liberty Bank.

Page 27 of 29

Addendum D

Reconsideration Procedure

Access Group’s Reconsideration Policy and Procedures

My loan request was denied. Will Access Group take a second look at my request?

YES! Our policy is to allow a one-time reconsideration of your loan application on behalf of Liberty Bank, N.A. All reconsiderations must be concluded within 60 days of your initial denial. In requesting reconsideration, you are authorizing us to obtain a copy of your credit bureau report, which we will do within 60 days. In order to facilitate a thorough and timely review, all requests for reconsideration must be submitted in writing.

Your correspondence should specifically address the items listed in the enclosed denial letter and be accompanied by appropriate documentation (please list your Social Security number in your letter or fax).

All reconsideration requests should be mailed to:

Access Group, Inc.

Credit Reconsideration Dept.

P.O. Box 7410

Wilmington, DE 19803-0410

Or, you may fax your correspondence to:

Access Group, Inc.

Credit Reconsideration Dept.

(302) 477-4296

What information was used in initially denying my loan request?

We have relied upon the information contained in your credit report. Your credit report contains detailed information on your past credit history and performance. Access Group, on behalf of Liberty Bank, N.A., evaluates the information found in your credit report.

What information will be used in reconsidering this initial decision?

We will reconsider your loan application based solely on errors in your credit report, which are called to our attention or negative items you are able to correct. For this reason, we strongly urge you to get a copy of your credit report, free of charge, from the credit agency listed on the enclosed denial letter. In your correspondence with us, please list the errors you find on the report. Only errors evidenced by a corrected credit report, obtained by the Access Group directly from the credit agency, will be considered.

What procedures do I follow to have my application reconsidered?

1. Carefully read the enclosed denial letter.

2. Order a copy of your credit report by calling the consumer credit reporting agency listed in your letter.

3. Check your credit report for accuracy and report any errors by calling the consumer credit reporting agency directly and by contacting each reporting creditor who is a source of an error. In some cases, credit reports reflect issues with creditors or have reporting errors about which you may be unaware. To help ensure a timely response, we suggest that you send correspondence to the consumer credit reporting agency via registered mail.

Page 28 of 29

Addendum E

Originating Lender’s Privacy Policy

Liberty Bank, N.A.

25201 Chagrin Blvd., Suite 120

Beachwood, OH 44122-5600

Securing Your Financial Privacy

PRIVACY DISCLOSURE

Liberty Bank, N.A. is committed to the strong tradition of safeguarding our customers’ private financial information. Liberty Bank, N.A. collects, retains, and uses information about individual customers only when we believe it would be useful (and allowed by law) in administering our business and to provide products, services and other opportunities to customers. This information is obtained from application information, transaction information, and consumer report information. Liberty Bank, N.A. makes disclosures to third parties only as permitted by law. This privacy policy expresses Liberty Bank N.A.’s commitment to our customers.

INFORMATION WE COLLECT ABOUT YOU

We collect nonpublic personal information about you from the following sources:

• Information we receive from you on applications or other forms,

• Information about your transactions with us, our affiliates, or others,

• Information we receive from a consumer-reporting agency

NO DISCLOSURES OUTSIDE OF EXCEPTIONS

We do not disclose any nonpublic personal information about our customers or former customers to anyone, except as permitted by law.

CONFIDENTIALITY AND SECURITY

We restrict access to nonpublic personal information about you to those employees who need to know that information to provide products or services to you.

We maintain physical, electronic, and procedural safeguards that comply with federal standards to guard your nonpublic personal information.

ADDITIONAL INFORMATION

If you have any questions or concerns about the protection of your personal financial information, please feel free to contact us at (216)359-5500.

ISP Form – 06/2009

Page 29 of 29

Program Guidelines

PEAKS Private Student Loan Program

Effective as of December 10, 2011

“Post TILA Transition Date”

Table of Contents

	Section	Page
1)	General Provisions		3
2)	Definitions (Defined Terms)		3
3)	Borrower and School Eligibility Requirements		3
4)	Loan Period		4
5)	Application Overview		4
6)	Borrower Credit Criteria		6
7)	Credit Decision Appeals		7
8)	Terms and Conditions of Loans		7
9)	Loan Limits		7
10)	School Certification		8
11)	Funds Disbursement		8
12)	Return of Loan Proceeds		8
13)	Interest Rate		10
14)	Loan File Documentation		10
15)	Capitalization of Interest		11
16)	Repayment Terms		11
17)	Account Billing		13
18)	Available Forbearances		14
19)	Making Demographic Changes		14
20)	Reporting Loans to Consumer Credit Reporting Agencies		15
21)	Financial Activity Reporting		15
22)	Collection and Default Activities and Due Diligence		15
23)	Bankruptcy		18
24)	Death		18
25)	Allowable Write-Offs and Refunds		18
	Addendum A Customer Identify Verification		20
	Addendum B Dictionary of Defined Terms		27
	Addendum C OFAC Procedure		28
	Addendum D Reconsideration Procedure		29
	Addendum E Originating Lender’s Privacy Policy		30

Page 2 of 30

1) General Provisions

a) Purpose

A PEAKS Private Student Loan is a Loan designed to meet the higher education financing needs of U.S. citizens or eligible noncitizens enrolled in associate, undergraduate or graduate programs of study, who are attending a school (“ITT ESI School”) owned and operated by ITT Educational Services, Inc. (“School”).

Unless otherwise noted, Access Group will be responsible for executing the loan origination (Origination Agent) functions contained in these Program Guidelines. The Access Group will be entitled to assume the accuracy of all information provided by the Program Applicant, the Clearinghouse, the credit bureau and the School (including representatives of an ITT ESI School). Unless otherwise noted, and on and after the effective date of the Agreement for Servicing Private Student Loans as executed by First Associates Loan Servicing, LLC and others, First Associates (Servicer) will be responsible for the loan servicing functions contained in these Program Guidelines. First Associates will be entitled to assume the accuracy of all information provided to it by Access Group, the Program Applicant, the Clearinghouse, the credit bureau and the School.

b) Applicability of Program Guidelines

These Program Guidelines apply to Loans made under the PEAKS Private Student Loan Program applied for on or after February 12, 2010 and prior to 7/1/2011, with the first disbursement occurring no later than 7/31/2011. A new Interest Rate Margin is in effect for applications initiated on or after February 8Th, 2011. Please see section 8 Terms and Conditions of Loans for specific details.

c) Forms

In the Approval of Documents and Procedures Pursuant to Private Education Loan Origination and Sale Agreement dated February 11, 2010 the Originating Lender has approved the forms attached thereto as exhibits B through G. The Origination Agent may use other or additional forms as necessary or appropriate in connection with its collection, review and disposition of application data, and may make revisions to the attached forms that do not affect compliance with consumer protection law.

2) Definitions (Defined Terms)

See Addendum B for a list of defined terms. Capitalized terms not defined in these Program Guidelines will have the meanings assigned in other applicable documents, such as the Private Education Loan Origination and Sale Agreement (the “Origination Agreement”) or the Application and Loan Agreement. Any conflict between these terms will be governed by the respective Agreement.

3) Borrower and School Eligibility Requirements

a) PEAKS Private Student Loan Borrower Eligibility

In order to borrow a Loan, a Borrower must be eligible under the following Program underwriting guidelines established by the Originating Lender:

i) ITT ESI Schools will certify in the Loan Certification process that the School has received an Institutional Student Information Report from the U.S. Department of Education for each Borrower.

Page 3 of 30

ii) Borrower must be enrolled or accepted for enrollment at least half-time (based on ITT ESI School criteria) at, or have graduated from, an ITT ESI School, as certified by the ITT ESI School. If the Borrower is accepted for enrollment, the applicable academic period must begin no later than 120 days after the Application date, based upon the school certification. If the Borrower has graduated, the graduation date must be no earlier than 120 days prior to the Application date. Former ITT ESI School students who did not graduate (e.g., dropped out of school) are not eligible for the PEAKS Loan. The applicable ITT ESI School will be responsible for determining this eligibility and will confirm through the loan certification process.

iii) Borrower must have completed by the Application date a minimum of 20 quarter credit hours (or the equivalent) of credit for college level courses. ITT ESI Schools will be responsible for determining this eligibility and will confirm through the Loan certification process.

iv) Borrower must be at least the following age, based on the Borrower’s current address as set forth in the Loan Application:

(1)	Alabama	19
(2)	Nebraska	19
(3)	Puerto Rico	21
(4)	All Other U.S. Locations	18

v) Borrower must electronically execute the Application and Loan Agreement for the Program.

vi) Borrower must have a U.S. address and possess a U.S. Social Security number.

vii) Borrowers must successfully meet OFAC (Office of Foreign Asset Control) screening requirements. Access Group will perform the name verification check that is outlined in the OFAC procedure in Addendum C.

viii) Borrower must meet the Borrower credit criteria (detailed in section 6 of this document) of the Program.

b) PEAKS Private Student Loan School Eligibility

All Title IV eligible ITT ESI Schools located in the United States and its territories are eligible to participate in the PEAKS Private Student Loan Program.

4) Loan Period

Individual Program Applicants may request funds for prior and current Loan Periods at the same time. In these situations a single Application and, if approved, a single Loan will be made. In the event that the proceeds of a Loan will be utilized to refinance amounts due with respect to a prior academic year or portion thereof and a current or upcoming academic year or portion thereof, the “Enrollment Period” field on the Loan Application and the “Loan Period” field on the School Certification should be completed with the current or upcoming academic year or portion thereof.

5) Application Overview

This section contains an overview of the loan process. Further detail is found in subsequent sections of this document. Any changes to the following forms, or the method or timing of their completion, must be approved by the Originating Lender prior to implementation:

• Application

• Loan Agreement

• School Certification

• Truth In Lending Disclosure Statements

• Adverse Action Letters

Page 4 of 30

The Truth-in-Lending Disclosure Statements consist of 1) the disclosure statement provided with the Application (the Application and Solicitation Disclosure Statement), 2) the disclosure statement provided with the notice of loan approval (the Approval Disclosure Statement) and 3) the disclosure statement provided after the Borrower accepts the Loan (the Final Disclosure Statement).

The Application process will be hosted on the Access Group Loan Servicing Web site. Program Applicants will submit completed Applications to the Originating Lender using the Access Group Web site and will sign the Application and Loan Agreement electronically. Access Group will provide Program Applicants the Application and Solicitation Disclosure Statement as part of the electronic application process. A paper application process is not contemplated. All documentation that is sent to Program Applicants after receipt of the Application and Loan Agreement will be sent by Access Group to the Program Applicants by mail or electronically to the extent permitted by law.

Access Group will provide a self-certification form to the Program Applicant during the application session. Access Group will populate the self-certification form with information that the Program Applicant has provided in the loan application. Access Group will review the self-certification form to ensure that the Program Applicant has electronically signed the form before permitting the Program Applicant to continue with the application process.

Access Group on behalf of the Originating Lender will attempt to obtain a credit report for all Program applicants and underwrite the loan application. The credit report, or the notification from the credit bureau that a credit report does not exist, will be maintained in the Application file.

Each Program Applicant will be notified of the credit decision within 30 days of Access Group’s receipt of the application. Program Applicants who do not meet the credit criteria described in Section 6, below, will receive a mailed adverse action notice. Program Applicants who meet the credit criteria (Borrowers) will receive notice of credit approval. Program Applicants who have not left their online session will be notified online that their applications have been approved. Access Group will send 1) Program Applicants who have left their online session before being notified of approval, or 2) Program Applicants who could not be approved during their online session, but are approved after their online session has concluded, an email directing them to return to the Access Group Loan Servicing Website to view their Approval Disclosures.

Program Applicants who have not completed their applications within 30 days of credit review will receive an adverse action letter notifying the Program Applicant of the incomplete status. The letter will indicate that the Application will be denied for incompleteness if the required information is not provided within 120 days of the date Access Group completed the credit review process. Borrowers who have received emails directing them to return to the Access Group Loan Servicing Web site to view their Approval Disclosures, but have not done so within 30 days, will also receive an adverse action letter notifying them of the incomplete status of their Applications.

A FICO credit score for each applicant will be requested; the credit score will be maintained as part of the application file and used to assign each application a pricing tier.

The Approval Disclosure Statement will be populated with an offer acceptance date that is 36 calendar days from the date of the credit decision. For purposes of the Approval Disclosure Statement, Borrowers will have until this date to accept the loan offer described in the Approval Disclosure Statement. However, Access Group’s practice will be to allow the Borrower to accept

the loan offer for 120 days from the date of the credit decision. Approved Borrowers may accept the loan offer by following the instructions provided on the Access Group Loan Servicing Web site.

Page 5 of 30

Access Group will not make any changes to the loan terms summarized in the Approval Disclosure Statement other than those permitted by the Truth-in-Lending Act. Access Group may reduce the loan amount approved based on information received from the Borrower or the ITT ESI School that indicates that the Borrower’s actual or certified financial need has declined. Access Group will not prepare and send a new Approval Disclosure Statement in that situation.

After Access Group has received the Borrower’s acceptance of the loan offer, Access Group will prepare and mail a Final Disclosure Statement to the borrower. Borrowers will have three (3) business days from receipt of the Final Disclosure Statement to cancel the loan. Access Group will deem the Final Disclosure Statement to be received by the Borrower three (3) business days after mailing. The Borrower can cancel the loan by either calling or emailing Access Group as directed in the Final Disclosure Statement.

All Truth in Lending Disclosure Statement required fields will be calculated using methods approved by the Originating Lender. The Originating Lender’s Privacy policy, attached as Addendum E, will be mailed to Borrowers with the Final Disclosure Statement.

The Originating Lender will disburse Loan proceeds in accordance with the Origination Agreement. Once disbursed, the Loan will be transferred to a loan servicing system and Borrower documentation will be maintained as provided in these guidelines.

6) Borrower Credit Criteria

Program Applicants must either

a) Meet the following credit criteria, based upon information contained in the credit report:

i. No filed bankruptcy, discharged bankruptcy or foreclosure within 24 months before the Loan Application date, and

ii. No judgments, charge-offs, collections, liens, or repossessions in an aggregate amount of more than $2,500.00 excluding medical related accounts, within 24 months before the Loan Application date, and

iii. No record of a student loan default, unless the default has been paid in full.

or

b) Have been extended credit through the School “Temporary Credit” Program and have not had a filed or discharged bankruptcy within the 24 months preceding the Loan Application date, based upon information contained in the credit report.

i. School will provide a file identifying all Temporary Credit recipients.

ii. Access Group will use this information to review all applications that would otherwise be denied for any denial reason, except for bankruptcy, outlined by section a) above within 5 Business Days.

or

c) Have no credit history with the credit bureau.

An approved credit decision expires if the Loan is not first funded within 120 days from the date the credit decision was made. If the Loan isn’t funded within 120 days, Access Group will send an adverse action notification to the Program Applicant. If the Program Applicant desires to complete the loan, a new Application must be created.

Page 6 of 30

7) Credit Decision Appeals

The Program Applicant may appeal a denied credit decision through written correspondence, according to the Reconsideration Policy and Procedures attached as Addendum D.

8) Terms and Conditions of Loans

Table of PEAKS Private Student Loan Borrower Pricing Tiers

Pricing for each loan is based on the Borrower’s FICO score*:

Tier	AGI Tier Code	FICO Score	Interest Rate Margin	Origination Fee
1	600	790+	+ 1.5%	0%
2	601	720-789	+2.5%	2%
3	602	680-719	+5%	3%
4	603	650-679	+7%	5%
5	604	600-649	+8%	7%
6	605	No credit score	+ 9%	8%
7	606	599 and below	+ 11.5%	10%

For applications initiated on or after February 8^th, 2011 the below increased margins will come into effect.

Tier	AGI Tier Code	FICO Score	Interest Rate Margin	Origination Fee
1	607	790+	+ 2.5%	0%
2	608	720-789	+3.5%	2%
3	609	680-719	+6%	3%
4	610	650-679	+8%	5%
5	611	600-649	+9%	7%
6	612	No credit score	+ 10%	8%
7	613	599 and below	+ 12.5%	10%

* Eligible Borrowers with an Experian/Fair Isaac Score Code of 9002 or 9003 will be priced as if part of tier 6 (“no credit score”)

Interest Rate – Refer to Section 13.

Origination Fee – An Origination Fee will be added to a Loan at disbursement. This fee will be non-refundable except in cases of certain loan cancellation or refunds as described in Section 12. The applicable Origination Fee will be calculated on the Disbursed Amount and capitalized.

9) Loan Limits

Borrower Loan Limits

i) The minimum amount for each Loan is one thousand dollars ($1,000.00).

Page 7 of 30

ii) The maximum annual Loan amount is equal to the cost of attendance less financial aid for the applicable Loan Period(s) as certified by each ITT ESI School.

iii) No aggregate or annual maximum limits will be enforced by the Access Group.

iv) Aggregate limits are set by degree level and are enforced by each ITT ESI School.

(1) Associate degree programs: $35,000

(2) Bachelors degree programs: $60,000

(3) Graduate degree programs: $25,000

(4) Maximum undergraduate (associate and bachelor degree programs combined) : $60,000

(5) Maximum total of all programs : $85,000

The Origination Fee is not included in determination of the minimum and maximum loan limits.

10) School Certification

The PEAKS Loan requires School Certification. This School Certification must be provided by financial aid personnel at the applicable ITT ESI School or the School, using the Access Group web certification tool.

11) Funds Disbursement

Access Group will direct the Originating Lender to send Disbursement amounts to the School or for the account of the School via direct electronic funds transfer as provided in the Origination Agreement.

School will credit student accounts for the Disbursed Amount (which excludes the Origination Fee).

Disbursements will be scheduled in accordance with each ITT ESI School certification. Each Loan can have a maximum of four (4) disbursements. The ITT ESI School will choose the dates and disbursement amounts that best fit its needs and complies with applicable state law, as long as the first disbursement will occur at least nine (9) days after the School has certified the Loan.

If a disbursement is requested for a day on which Access Group or the Originating Lender is closed, the next available disbursement date will be used.

Access Group will determine which loans will be postponed in the event daily Disbursement volume exceeds the daily Reserve Fund balance as required by the Origination Agreement. A postponed loan Disbursement priority will be set based upon the date of the certification by the ITT ESI School (First In First Out priority). Any individual Disbursement that is postponed must be postponed in its entirety, and will not be partially disbursed.

12) Return of Loan Proceeds

The “Gross Refund Amount” of a Loan as used in these Guidelines means the portion of the Disbursed Amount on a Loan that is being credited to the Borrower’s Loan account in accordance with this Section. This section only applies to refunds and cancellations received from the ITT ESI School or the School. If funds are received from the Borrower directly, those funds will be processed as a pre-payment on the Borrower’s Loan and Origination Fees and accrued interest will not be refunded or waived.

If a cancellation or refund on a Loan is to be made after the Loan has been sold to the Trust by the

Page 8 of 30

Originating Lender:

• The School will remit 72% of the Gross Refund Amount to First Associates, and will communicate to First Associates what the Gross Refund Amount with respect to that Loan is;

• First Associates will credit the Borrower’s Loan account with 100% of the Gross Refund Amount;

• First Associates will remit the 72% of the Gross Refund Amount that it received from the School to the Trust; and

• The Trust will credit the subordinated note held by the School with an amount equal to 28% of the Gross Refund Amount.

If a cancellation or refund on a Loan is to be made before the Loan is sold by the Originating Lender to the Trust, or after the Loan has been sold to the Access Group:

• The School will remit 72% of the Gross Refund Amount to First Associates, and will communicate to First Associates what the Gross Refund Amount with respect to that Loan is;

• First Associates will credit the Borrower’s Loan account with 100% of the Gross Refund Amount;

• First Associates will request an amount equal to 28% of the Gross Refund Amount from the Trust;

• The Trust will remit an amount equal to 28% of the Gross Refund Amount to First Associates on behalf of the School, and will credit the subordinated note held by the School with an amount equal to 28% of the Gross Refund Amount; and

• First Associates will remit 100% of the Gross Refund Amount to the Originating Lender, unless the loan has been sold to Access Group in which case First Associates will remit 100% of the Gross Refund Amount to Access Group.

In all events, if First Associates receives a check or electronic funds transfer from the School and/or an account of the School related to a cancellation or refund of a Loan:

• If the cancellation or refund proceeds are received within 60 days of the Disbursement date:

• If the Gross Refund Amount equals the Disbursed Amount, then related fees and interest will be waived by the Originating Lender and credited in full to the Borrower’s account; and

• If the Gross Refund Amount is less than the Disbursed Amount, then the related fees and interest will be waived by the Originating Lender and credited on a pro-rata basis to the Borrower’s account.

• If the cancellation or refund proceeds are received later than the 60^th day after the Disbursement date, then no fees or interest will be waived or credited to the Borrower’s account.

In all events, First Associates will communicate all cancellation information to the appropriate parties including the Administrator. The Originating Lender will calculate the adjustments to the fee remittance required by the Origination Agreement. Premiums and Fees on any canceled or refunded Loan will be refunded as provided in the Origination Agreement.

Page 9 of 30

13) Interest Rate

a) Accrual – Interest will accrue at the Variable Rate (as defined below) on the principal amount of each Loan outstanding.

b) Interest will be calculated on a daily simple interest basis, according to the outstanding principal balance each day of the term of the Loan. The daily interest rate will be equal to the annual interest rate in effect on that day, divided by 365.25 days and will not vary for leap years.

c) Variable Rate – The Variable Rate will be equal to the “Index” (defined below), rounded up to the nearest one-eighth of one percent (0.125%) plus a Margin assigned to the Loan based on the borrower’s FICO credit score as described in Section 8 up to a maximum of 25%.

d) The Variable Rate may change, effective on the first day of any month, if the Index changes. The “Index” for any month is the U.S. Prime Rate, as published by The Wall Street Journal on the seventeenth (17^th) day of the immediately preceding month, or if The Wall Street Journal is not published on the seventeenth (17^th) day of the immediately preceding month, then the next day on which it is published. If The Wall Street Journal is no longer published, the loan holder will find an alternate source for the Index. If the Index is no longer available, the loan holder will choose a comparable Index.

e) Changes in the Variable Rate will be communicated to the Borrower consistent with federal and state regulatory requirements.

f) The Servicemembers Civil Relief Act (The Act) requires consumer lenders to reduce the interest rate to 6% on any Loan to a Borrower who is called to Active Duty if the Loan was disbursed prior to the Borrower being called to Active Duty. In order for the Borrower to be eligible, the Servicer must receive proof of military mobilization or a call to active duty (i.e.: a copy of his/her military orders) with a beginning date after the date of the first Disbursement of the Loan. If no end date to the Active Duty is provided in the documentation, the military website will be queried on a quarterly basis to determine if the Borrower is still on Active Duty. The reduced interest rate will end when the Borrower is no longer on Active Duty.

LOAN SERVICING

14) Loan File Documentation

The following documents will comprise the Loan File. These may be electronic or imaged paper documents.

a) The fully-completed Application and Loan Agreement, dated and electronically signed by the Borrower.

b) The consumer reporting agency record on the Borrower, if any, obtained in the loan application process and any updated consumer reporting agency records.

c) Evidence of communicating application underwriting decision to Program applicant.

d) If applicable, documentary evidence that an exception was made in accordance with these Program Guidelines.

e) ITT ESI School Certification (which is also used for verification of enrollment).

Page 10 of 30

f) Evidence of disbursement activity.

g) The Regulation Z Approval Disclosure Statement and Final Disclosure Statement.

h) The Loan history, maintained by the Servicer in its normal course of business, of payments made on the Loan.

i) The documentary evidence of the Servicer’s efforts to affect a cure of any delinquency or default and to collect the Loan.

j) Material customer correspondence.

First Associates and Access Group will each maintain the loan file documentation according to its record retention schedule.

15) Capitalization of Interest

Accrued and unpaid interest will be added to the principal balance (capitalized) on the first day of each month during the Interim Period, during any period of Forbearance, excluding Administrative Forbearance and during the Modified Graduated Repayment Schedule (MGRS).

Any remaining accrued unpaid interest will be capitalized at the end of the Forbearance period, excluding Administrative Forbearance and also at the end of each step of MGRS as described in Section 16 (h) (i)-(iv)

16) Repayment Terms

From a processing perspective, Interim Period is the in-school period plus the grace period.

(a) The Interim Period begins on the date of the first disbursement of the Borrower’s first PEAKS Private Student Loan, continues while the Borrower is continuously enrolled at an ITT ESI School on at least a half-time basis, based on the ITT ESI School criteria (“In School Status”), and ends on the earliest of:

i) the date that is six months (grace period) after the Borrower graduates, unless the Borrower enrolls in another program at an ITT ESI School at least half-time; or

ii) the date that is three months (grace period) after the Borrower ceases to be enrolled at least half-time for any reason other than graduation unless the Borrower enrolls in another program at an ITT ESI School at least half-time; or

iii) the date that is 48 months after the first disbursement of the Borrower’s first PEAKS Private Student Loan.

Any payments received from the Borrower during the Interim Period will be applied first to the accrued interest and then principal.

(b) Entry into Repayment

If a Borrower has not yet exhausted the Interim Period for one or more PEAKS Private Student Loans and subsequently re-enrolls in an ITT ESI School on at least a half-time basis, whether or not the Borrower obtains another PEAKS Loan, the Borrower will return to an in-school status and all of the Borrower’s Loans will enter Repayment together at the earliest of the Interim Period end dates outlined in section 16(a).

i) In order to continue in an In-School status, the enrollment of the Borrower on at least a half-time basis must be confirmed by the Servicer through the Clearinghouse or the Borrower must provide evidence of enrollment during the academic period in the form of a letter or other documentation from an appropriate official of the ITT ESI School.

Page 11 of 30

ii) Once a Borrower has exhausted the Interim Period, the following conditions apply:

• PEAKS Borrowers who transfer to another ITT ESI School within 48 months from the date of the first disbursement of their first PEAKS Loan will be eligible for an in-school forbearance on all of their PEAKS Private Student Loans as described in Section 18.c.

• PEAKS Borrowers who transfer to an institution other than an ITT ESI School are not eligible for an in-school forbearance on their PEAKS Private Student Loans. Their Loans must remain in Repayment Status.

First Associates is responsible for monitoring the Clearinghouse and updating all Borrower enrollment status information to ensure it correctly applies all Interim Periods and In School Forbearance periods. Such monitoring will be conducted on at least a monthly basis and updates applied as applicable.

The following additional repayment terms apply to the PEAKS Loan.

(a) Once the loan enters into Repayment Status, the repayment term is up to 10 years (120 months) which will be extended by any periods of Forbearance.

(b) The combined monthly payment on all of a Borrower’s PEAKS Loans will be at least $50 each month or the unpaid balance, whichever is less.

(c) Payments must be made in U.S. dollars drawn on a U.S. bank.

(d) No penalty for prepayment

(e) The Servicer may collect a late charge of $10.00, for any part of any installment payment, other than late charges assessed on a prior monthly payment, which is not paid in full within fifteen days after the payment due date.

(f) Any amount paid in excess of the monthly payment amount will be applied to future payments unless the Borrower specifically requests the excess amount be applied to the principal balance. The due date will be automatically advanced. If the amount paid in excess is not a multiple of the monthly payment, the next monthly payment will remain due at a lesser amount, reduced by the excess amount paid, on the following month’s due date. Borrower requests to have excess payments applied to the principal balance will be granted by the Servicer.

(g) Standard Repayment

“Easy Pay Equal” Repayment plan – the standard repayment plan, requires monthly payments of both principal and interest. This amount is recalculated quarterly to determine whether the payment amount should increase or decrease based on interest rate changes, lump sum payments, periods of Forbearance, capitalization of interest, etc. to ensure the Loan is repaid within the remaining Repayment period. If the monthly installment payment amount is recalculated and the recalculated payment amount would differ by less than 2.0% from the monthly installment payment last in effect, the repayment amount will remain unchanged.

(h) The other repayment schedule, available upon the approval of the servicer on behalf of the loan holder, is:

Modified Graduated Repayment Schedule (MGRS) - With this repayment plan, the Borrower will:

i. Pay 50% of the standard monthly payment for the first six months.

Page 12 of 30

ii. Pay 75% of the standard monthly payment for the second six months.

iii. Pay interest only for the second year.

iv. After two years, return to making standard monthly payments.

PLEASE NOTE: MGRS is only offered once over the life of the loan and is a collections tool used during the delinquency phase. It is not a standard re-payment plan.

(i) Auto-debit payments (ACH) and interest rate discount – Borrowers who authorize First Associates to automatically withdraw their monthly loan payments from their checking or savings account automatically qualify for an interest rate discount of 0.25% on all of their PEAKS Loans.

This interest rate reduction will permanently terminate the first time a payment is returned or declined for any reason (unless the reason is due to an error outside the control or responsibility of the Borrower).

After the first return or decline of an automated payment, the Borrower can continue to make payments using the auto-debit electronic transfer method until they provide the Servicer with instructions to cancel the service or until a second incidence of a return or decline of an automated payment occurs for any reason (unless the reason is due to an error outside the control or responsibility of the Borrower), at which time the auto-debit electronic transfer method is terminated for the Borrower’s account. If the Borrower subsequently makes twelve (12) consecutive monthly payments on time and in full, the Borrower may then request the Servicer to resume automatic debit payments.

If the Borrower enters any type of Forbearance, the auto-debit payment plan and the associated interest rate reduction are simultaneously suspended until the Borrower re-establishes automatic payments, at which point the interest rate reduction resumes.

Borrowers who enter a Modified Graduated Repayment Schedule repayment plan are allowed to continue using the auto-debit payment method and do not forfeit the associated interest rate discount as long as no payment is returned or declined.

To activate this interest rate reduction the first time or following any suspension during a forbearance period, the Borrower must contact First Associates and submit the required request form.

Each Borrower will be sent information about this feature at least 30 days prior to the end of the Borrower’s Interim Period.

17) Account Billing

Borrowers in Repayment will be billed on a monthly basis. The billing statements will be sent at least 15 days before the due date. Payments will be processed and posted to the Borrower’s account effective the date the payment was received. Payments will be applied so that accrued and unpaid interest and any other fees or charges (e.g., collections charges) are satisfied before outstanding principal is reduced.

Page 13 of 30

18) Available Forbearances

The following Forbearances are available at the discretion of the Servicer on behalf of the loan holder. Any months that a Loan is in a period of Forbearance will correspondingly extend the Repayment Period.

(a) Economic Hardship Forbearance – This Forbearance may be granted in increments of up to three months, for periods that collectively do not exceed twelve months over the life of the loan. This Forbearance may be used retroactively to cover periods of delinquency. The Borrower must request an Economic Hardship Forbearance. The request may be made either over the phone or by using the applicable Forbearance request form. Documentation of income or expenses is not required.

(b) Administrative Forbearance – This Forbearance may be granted to cover borrower periods of delinquency arising from interruptions in payment notification, billing, or other delays not caused by the Borrower.

(c) In School Forbearance – This Forbearance will be granted in increments of up to one year (12 months), for periods that do not extend beyond four years (48 months) from the date of the first disbursement of the Borrower’s first PEAKS Loan. The Borrower must be enrolled on at least a half-time basis (as defined by the School) at an ITT ESI School. To qualify for such Forbearance, the Servicer may rely on Clearinghouse data without request from the Borrower, or the Borrower must provide evidence of enrollment during each academic period in the form of a letter or other documentation from an appropriate official of such institution.

(d) U.S. Military Mobilization Forbearance – This Forbearance will be granted on Loans for Borrowers who are U.S. military personnel and who are activated or reassigned to Active Duty for a period of more than 30 days as a result of a military mobilization. Borrowers can use up to 12 months of U.S. Military Mobilization Administrative Forbearance on all private loans. The request may be made either over the phone or in writing. In order to be eligible, the Servicer must receive proof of military mobilization or a call to Active Duty (i.e.: a copy of the Borrower’s military orders).

(e) Discretionary Administrative Forbearance- This forbearance may be granted in increments up to three months, for periods that collectively do not exceed twelve months over the life of the loan. This forbearance may be used to retroactively cover periods of delinquency that arise from borrowers who are in an in school status but have exhausted their 3 month grace period. The Servicer may proactively apply this forbearance.

19) Making Demographic Changes

Customer demographic changes should be made to the appropriate operating systems in a timely manner. Demographic change requests may be oral, written, via returned mail, or other official sources. Permitted changes include Borrower addresses, phone numbers, references, and other pertinent information that would allow the customer record to remain accurate. First Associates reserves the right to request supporting documentation from the Borrower for any demographic change.

Page 14 of 30

20) Reporting Loans to Consumer Credit Reporting Agencies

a) The Servicer will report the status of all Loans (other than Defaulted Loans) on a monthly basis to three of the national consumer credit reporting agencies. Loans that are “current” and those that are 59 days or less past due as of the end of a calendar month will be reported as “current.” Loans that are 60 days or more past due as of the end of a calendar month and have not defaulted will be reported based on the appropriate delinquency status.

Once a loan has defaulted, that event will be reported and no further reporting will occur because the reporting of recoveries on defaulted accounts will be reported by the collection agency performing recovery activities for that Loan.

Loans in Forbearance status will be reported as such.

b) The Servicer will comply with the regulatory requirements that govern consumer credit agency reporting. The Servicer will attempt to resolve any credit reporting disputes raised by the Borrower.

21) Financial Activity Reporting

The Servicer will provide the monthly reports identified in the Servicing Agreement and the Administration Agreement.

22) Collection and Default Activities and Due Diligence

The Servicer is responsible for complying with all applicable federal and state laws while enforcing default and collection procedures.

a) Delinquent means the failure by a Borrower to pay when due a non-accelerated scheduled periodic payment due under the terms of the Loan. Delinquent does not mean the violation by a Borrower of any other term or condition of the Loan. A Loan is deemed to be delinquent (or in delinquency) as of the close of business on the installment due date for which a scheduled periodic payment has not been made in full or within 10% of the amount due, but not more than $5.00 less than the amount due. The first day of delinquency is the day following the payment due date. A Loan will continue to age or remain delinquent from that point until payment in full is made or other payment arrangements are enacted. Once a Loan becomes delinquent, the delinquency may also be referred to as “days past due.”

b) Default means:

i) For any Loan owned by the Originating Lender or any institution subject to regulations promulgated by the Federal Financial Institutions Examination Council or its member regulatory agencies: a Loan that is one hundred twenty (120) days delinquent. A Loan is deemed to be 120 days delinquent and is declared to be in default when the Borrower fails to make the scheduled periodic payments in full when due or has failed to comply with other approved written payment agreements and the Loan ages to 120 days past due, or because of the Borrower’s death.

ii) When ownership is by other than an entity described in (i) above: a Loan that is one hundred eighty (180) days delinquent. A Loan is deemed to be 180 days delinquent and is declared to be in default when the Borrower fails to make the scheduled periodic payments in full when due or has failed to comply with other approved written payment agreements and the Loan ages to 180 days past due, or because of the Borrower’s death.

Page 15 of 30

c) Due Diligence is the group of activities that are performed during attempts to collect the Loan from the Borrower.

d) Skip Trace is the group of activities that are performed to locate a Borrower the Servicer is unable to contact using the Borrower information contained in the current loan record, such as when the address is determined to be invalid (address skips) or the telephone number is determined to be invalid (telephone skips).

i) Activities in the attempt to locate the Borrower will be documented in the account history and any documentation related to the efforts will become a part of the Loan File.

ii) The purpose of skip tracing is to obtain the necessary contact information to resume normal Due Diligence processes. Skip Trace activities will be considered complete when the Servicer has obtained a valid address (address skip) or telephone number (telephone skip) or has performed each of these activities:

(1) Attempted to contact the Borrower to obtain a new address or telephone number for the Borrower.

(2) Attempted to contact all references listed on the Loan application to obtain a new address or telephone number for the Borrower.

(3) Contacted the ITT ESI School for updated borrower contact information, if the ITT ESI School permits its release.

iii) When Skip Trace activities are complete and the process has not resulted in a new address or telephone number, no further Due Diligence activities can be performed by Servicer.

e) Due Diligence Schedule of Letters and Notices

i) When Default occurs at 120 days, the Servicer will send increasingly forceful collection letters and/or electronic communication no less frequently than the 10^th, 20^th, 40^th, 70^th, and 90^th days of delinquency to the Borrower. When Default occurs at 180 days, the Servicer will send increasingly forceful collection letters no less frequently than the 10^th, 20^th, 40^th, 70^th, 90^th, 120^th, and 150^th days of delinquency to the Borrower. The collection letters must be sent out on a timely basis, with a tolerance for error of plus or minus 5 business days.

ii) The letter and/or electronic communication sent on the 90^th day of delinquency for 120-day Defaults or on the 150^th day for 180-day Defaults will be a final Demand Letter which demands the full amount past due.

iii) At the 120^th day of delinquency for 120-day Defaults or at the 180^th day for 180-day Defaults, the Servicer will send a Notice of Default, which informs the Borrower that the Loan is in default and may be turned over to a collection agency. The Notice of Default must be sent out on a timely basis, with a tolerance for error of plus or minus 5 business days.

iv) Servicer may employ either email and/or electronic communication for all letters and notices.

f) Due Diligence Schedule of Telephone and Letter / E-mail Contact

For purposes of this section the following definitions apply:

“Contact” is defined as a phone conversation directly between the Borrower and a representative from the Servicer or an agency representing the Servicer.

“Attempt” is defined as an approach to try and secure communication with the Borrower.

Page 16 of 30

This can be through the telephone, electronic message or physical letter.

During contact with the Borrower, the representative should identify the Loan(s) being discussed and determine the reason for delinquency. The representative should then work with the Borrower to identify the best option available to assist the Borrower

Due Diligence Schedule

Servicer will perform the following actions, unless performance of them would be a violation of any applicable federal or state laws or regulations arising from the assertion of rights by the Borrower.

Diligence Bucket	Actions *
1 to 14 days delinquent	Past-Due Notice
15 to 29 days delinquent	One Contact with borrower or attempts made on at least three separate days
30 to 60 days delinquent	Two Contacts with borrower or attempts made on at least four separate days
61 to 90 days delinquent	Two Contacts with borrower or attempts made on at least four separate days
91 to 120 days delinquent	Two Contacts with borrower or attempts made on at least four separate days
When applicable: 121 to 150 days delinquent	Two Contacts with borrower or attempts made on at least four separate days
When applicable: 151 to 180 days delinquent	Two Contacts with borrower or attempts made on at least four separate days

* The collection telephone calls, letters and or electronic communication must be conducted on a timely basis, with a tolerance for error of plus or minus 5 business days. Attempts may be made using telephone, email, or letters. During each Diligence Bucket (beginning with the 30 to 60 days delinquent bucket), at least one attempt must be by telephone and at least one attempt by email or letter.

g) Initiation of Skip Trace Activities

The Servicer will perform both address skips and telephone skips. It will initiate skip trace activities when it learns that the mail to the Borrower has been returned as undeliverable or when it learns a telephone number is invalid, and that discovery occurs on or before the 90^th day of delinquency for 120-day Defaults and on or before the 150^th day of delinquency for 180-day Defaults.

h) Recovery Activities on Defaults

The following recovery activities apply if the Servicers has been contracted by the Loan holder to perform such activities.

i) Once a Loan defaults, it is no longer a serviced Loan under the terms of the servicing agreement and the payment of servicing fees on that Loan ceases. To provide for ongoing recovery efforts on defaulted Loans, Servicer will maintain the system of record for tracking the then-current unpaid defaulted Loan balance.

ii) Servicer will assign all defaulted Loans to one or more recovery collection agencies.

Page 17 of 30

iii) Servicer may employ Deutsche Bank or its affiliates to perform collection activities provided Servicer believes the proposed fees are both cost-effective and reasonable in comparison with other potential sources.

iv) Any amounts received from collection agencies will be transferred to the loan holder or Secured Party, if applicable, in an amount calculated in accordance with the Servicing Agreement.

v) Servicer will track collection agency performance and will initially assign and subsequently re-assign defaulted Loan collection agency placements based on collection agency performance when alternative collection agencies are available.

vi) Servicer will make all decisions as to whether to accept or reject partial payments in settlement of the full defaulted Loan balance.

23) Bankruptcy

a) The Servicer will send copies of all documents relating to any bankruptcy proceeding to the owner of the Loan within 15 business days of receipt, and the Servicer will cease all collection activity. Bankruptcy proceeding may include petitions in bankruptcy court and/or correspondence concerning bankruptcy from the Borrower or an attorney representing the Borrower.

b) If the Servicer receives notice that a Borrower files for a Chapter 13 bankruptcy, the Servicer will file a Proof of Claim with the bankruptcy court and cease contact with the Borrower. Once a plan of reorganization is approved, the Servicer will resume activities in accordance with the plan.

c) If the Servicer receives notice that a Borrower files for a Chapter 7 bankruptcy, the Servicer will file a Proof of Claim with the bankruptcy court only if required by the bankruptcy court.

24) Death

a) The Servicer will send copies of all documents relating to any Borrower death to the owner of the Loan within 15 business days of receipt.

b) The Origination Agent will cancel any future disbursements that are dated after receipt of the death certificate.

c) Acceptable documentation of a death is a certified copy or a photocopy of the Death Certificate.

If the Servicer suspects the documentation related to any Borrower death is fraudulent, the Servicer may continue to perform collection/due diligence activities while completing its research and making its determination.

25) Allowable Write-Offs and Refunds

a) Any remaining loan balance of $5.00 or less will automatically be written off during the nightly update to the servicing system.

Page 18 of 30

b) Any remaining loan balance of more than $5.00 but $10.00 or less will be written off 30 days after the balance is reduced to that amount.

c) The Servicer may use its discretion to write-off amounts greater than $10.00 but less than or equal to $100.00. The write-off involves a manual entry.

d) Not including default claim balances, amounts above $100.00 will be referred to the Owner for review and approval/denial. If approved, the write-off will involve a manual entry.

e) Refund amounts less than or equal to $1.00 are written-off within 30 days. Amounts greater than $1.00 are refunded within 45 days.

f) If the borrower has other open program loans serviced by First Associates, providing the borrower did not request otherwise, refund amounts due a borrower equal to $25.00 or less will be applied to the borrower’s other open program loans.

Page 19 of 30

Addendum A

CUSTOMER IDENTIFICATION PROGRAM

Access Group, Inc.

For Compliance with Section 326 of the USA PATRIOT Act

Revised April 27, 2009

Page 20 of 30

Table of Contents

Purpose	22
Identity Verification Procedures	22
Customer Information Required	23
Verification Through Documents	24
Non-Documentary Verification	24
Lack of Verification	25
Record Keeping Requirements	25
Comparison with Government Lists	25
Customer Notice	26

Page 21 of 30

Purpose

The purpose of this document is to describe the student loan processing procedures Access Group, Inc. has in place to comply with the Customer Identity Verification Requirements under Section 326 of the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism (USA PATRIOT) Act. Regulations issued by the Department of the Treasury on April 30, 2003 require banks to develop a Customer Identification Program (CIP) that implements reasonable procedures relative to the core concepts of Section 326: (1) collection of identifying information about customers opening an account, (2) verifying that the customers are who they say they are, (3) maintaining records of the information used to verify their identity, and (4) determining whether the customer appears on any list of suspected terrorists or terrorist organizations. Customer Identification Programs must be in place for banks by October 2003.

This Customer Identification Program has been created because: (a) Section 326 of the USA PATRIOT Act currently applies to Access Group; (b) the Department of the Treasury has indicated that separate regulations regarding Section 326 are forthcoming with respect to non-bank financial institutions and are expected to closely track the bank regulations; and (c) The Originating Lender has requested that, as origination agent for them, we share with them our Customer Identification Program.

Access Group and the Federal Family Education Loan Program (FFELP) have controls in place that mitigate the risk of providing student loans to persons for terrorist purposes. These controls have been examined in light of the CIP requirements and are described within this document. Loan processing procedures reflect the steps taken to verify identity, including what information needs to be collected and reviewed, time frames for the review and positive identification of customers, and escalation procedures for problems and discrepancies found. In consultation with the Compliance Department, the Operations processing areas will train employees on any changes that occur because of the requirements imposed by the USA PATRIOT Act as well as other statutes and regulations governing student loan processing.

Access Group has a Director of Compliance whose responsibility it is to document the CIP and monitor the company’s compliance with the CIP requirements, and to include the requirements of the Act in the company’s internal compliance audit function.

Identity Verification Procedures

§103.121(b)(2) –

The CIP must contain risk-based procedures for verifying the identity of each customer to the extent reasonable and practicable. The procedures must be based upon relevant risks such as the types of accounts being opened, the various methods of opening accounts, and the types of identifying information available, as well as the company’s size and the type of customer base.

How Access Group meets the compliance requirement

Access Group believes that most of the FFELP and Private loans offered to borrowers pose little risk of fraudulent use for the following reasons:

• Except as noted below, the school certifies the student’s eligibility for a loan and his/her enrollment status, giving us a reasonable belief that it knows the true identity of the customer.

• In most cases, loan funds are delivered directly to the school’s financial aid department via check or electronic funds transfer.

• Stafford loans are made payable to the student or co-payable to the student and the school. PLUS loan funds disbursed by individual check must be made co-payable to the borrower and the school.

• The school applies the loan funds to unpaid educational expenses actually incurred by the student.

Page 22 of 30

• Because loan funds are only disbursed for school related expenses, a potential identity thief would have to enroll in school, certify the loan, and create the appearance of attending classes in order to obtain loan proceeds.

• For Stafford and PLUS Loans, the Title IV loan refund process provides a final safeguard against the misuse of student loan funds. For students who withdraw from school within a short time of enrollment, the school must calculate and return to the lender a refund of loan funds based on a percentage of the term enrolled. In most cases, depending on when the student withdraws from school, refunds are sent from the school directly to the originator of the loan rather than to the student. So, even a student with the intent to receive the money personally by withdrawing immediately from school is typically not able to do so.

• For Access Group PLUS and private loans that require a cosigner, sponsor, or endorser, funds are delivered to the school on behalf of the student, thereby mitigating the risk that the funds could be used for terrorist purposes by the loan cosigner or sponsor.

• Access Group PLUS and private loans require a credit bureau report that is used to determine the borrower’s credit eligibility and the pricing of the private loans. The credit bureau report is considered an additional source of identity verification. For some of the loans, however, borrowers who have not established a credit history can still qualify for loan funds, and in the case of the student recipient of sponsor loan funds, no credit check is done on the student. In these cases, we rely on the school certification process in order to verify the borrower’s identity and on the funds disbursement process to ensure that the loan funds are delivered to the school.

• The Access Group REL and DEL loans present a greater risk for the misuse of funds because the funds are delivered directly to the student, the school is not required to certify a borrower’s eligibility, and REL and DEL borrowers do not need to be previous Access Group borrowers. To help mitigate this risk, Access Group has implemented additional identity verification requirements.

• For BEL loans, borrowers receive the funds directly and they do not need to be previous Access Group borrowers. In these instances Access Group relies on the school certification process and the credit approval process in order to verify the borrower’s identity. Statistically, there are an insignificant number of BEL loans with no credit history.

• For federal Consolidation Loans, the risk is even lower since this loan is actually a refinancing of other eligible federal loans and the borrower is the recipient of a new payment schedule, not loan proceeds.

• The Treasury regulations allow an exception to the identification requirements for existing customers (returning borrowers) who have loans with Access Group prior to October 1, 2003. Access Group, however, applies the identification requirements to all customers in order to even further mitigate the risk.

• Access Group routinely purchases private loans from Lenders through a contractual arrangement. Identity verification for these loans is not necessary at the time of purchase; Access Group has already performed identity verification for these loans on behalf of The Originating Lender during the origination process.

• Students studying abroad at an eligible foreign school in a program of study that is approved by the home institution must have their enrollment verified by the school before loan proceeds are disbursed. In some cases, the student may request to have the funds disbursed directly to him or her, however, the school must certify the student’s enrollment. The foreign school is notified that the funds were sent directly to the borrower.

Customer Information Required

§103.121(b)(2)(i) –

The minimum information that a bank must obtain from each customer prior to opening an account is as follows: (1) name; (2) street address (residential and mailing addresses); (3) date of birth; (4) an identification number.

Page 23 of 30

How Access Group meets the compliance requirement

• The borrower’s name, date of birth, permanent address, and Social Security Number is collected on all loan application forms. Additionally, a mailing address is requested for REL, DEL, and BEL applicants. For federal Stafford and PLUS loan borrowers, the mandated Master Promissory Note (MPN) collects this data and the mandated federal Consolidation Loan application/promissory note is the data collection instrument for the Consolidation Loan. Instructions on the form ask specifically for a permanent home street address and indicate that a temporary street address is not acceptable. The same information is required of Access Group private loan borrowers, cosigners and sponsors on the private loan application and promissory note.

• For collecting the identification number, Access Group requires citizens to provide their Social Security Number on the loan application forms. Eligible non-citizens seeking federal aid provide their alien registration number during the FAFSA application process. For Access Group private loan borrowers who are international students, a copy of the passport showing country of origin is required. Cosigners and sponsors must be citizens in order to qualify for private loan funds.

Verification Through Documents

§103.121(b)(2)(ii)(A) –

The CIP must include procedures describing when the bank will verify identity through documents and setting forth the documents that are to be used for this purpose.

How Access Group meets the compliance requirement

As stated above, Access Group requires a copy of the passport showing country of origin for all international loan applicants.

Additionally, if discrepancies are noted in the primary identifying fields (Name, address, etc.) between the loan application and the credit bureau report, Access Group may require the applicant to submit documentary evidence to resolve the discrepancy.

Non-Documentary Verification

§103.121(b)(2)(ii)(B) –

The CIP must include procedures describing what non-documentary methods are being used to verify identity and when these methods will be used.

How Access Group meets the compliance requirement

• Access Group considers the required certification of the borrower’s eligibility by the school to be non-documentary verification of the borrower’s identity by a trusted third party. The school certifies all private loans, with the exception of the REL and DEL, and all federal loans.

• An address comparison is performed for all REL and DEL applicants. If the address provided on the loan application does not match the address on the credit bureau report, then additional steps are taken to verify the mailing address. If the mailing address cannot be verified through non-documentary means (such as directory assistance or www.usps.com), the applicant is contacted and asked to provide acceptable documentation of proof of residence.

• If significant discrepancies are discovered in the borrower’s name, address, or Social Security Number during the credit quality control process, Access Group will compare and verify information.

Page 24 of 30

• As part of the normal processing procedures, we reconcile loan disbursement information with each school for each borrower. This is one way of ensuring that loan funds are being used for educational purposes.

• The U.S. Department of Education data match process against the Social Security Administration (SSA) and the Immigration and Naturalization Service (INS) databases verifies the identity of each Stafford and PLUS Loan borrower.

• Loan funds are released after the school has certified the borrower’s eligibility and has resolved discrepancies with the SSA and INS matches.

• Schools also need to match enrollment records of foreign students, regardless of financial aid applications, against the INS database at the time the student enrolls.

Lack of Verification

§103.121(b)(2)(iii) –

The CIP must include procedures for responding to circumstances in which the bank cannot form a reasonable belief that it knows the true identity of a customer.

How Access Group meets the compliance requirement

If the borrower, cosigner, sponsor, or endorser (whenever applicable), does not submit the requested documents for identity verification, we will decline making the loan and notate the reason on the system as “failure to submit proof of identity.”

Record Keeping Requirements

§103.121(b)(3)(i) and (ii)

The CIP must include procedures for making and maintaining a record of all information obtained under the procedures implementing the minimum identity verification requirements of the CIP. Records must be kept for five years after the date the account is closed or becomes dormant.

How Access Group meets the compliance requirement

• Access Group retains all borrower origination and disbursement records for all borrowers. The documentation used to verify borrower identity is scanned and imaged. Additionally, a note is placed on the borrower’s account using a memo feature to indicate the type of documentation collected.

• If there is a discrepancy in any of the identification materials submitted by a loan applicant, the processing area will require new documentation be submitted, and retain in the memo feature a description of the steps taken to resolve it.

Comparison with Government Lists

§103.121(b)(4) –

The CIP must include procedures for determining whether the applicant is on any list of known or suspected terrorists or terrorist organizations issued by any federal government agency and designated as such by Treasury in consultation with federal functional regulators.

How Access Group meets the compliance requirement

• Access Group currently compares international loan applicants who pass the established credit criteria to the Treasury’s Specially Designated Nationals and Blocked Persons (SDN) list.

• Access Group performs a name-based OFAC check on every federal loan applicant and on all private loan applicants who pass the established credit criteria.

Page 25 of 30

Customer Notice

§103.121(b)(5) –

The CIP must include procedures for providing customers with adequate notice that the bank is requesting information to verify their identity. The notice must generally describe the verification requirements and be given in a manner reasonably designed to ensure the customer views or receives the notice before opening an account.

How Access Group meets the compliance requirement

• The “Instruction and Notices” page included with each FFELP Stafford and PLUS MPN contains sufficient notice that information is collected for identity verification and anti-fraud purposes.

“The principal purposes for collecting the information on this form, including your SSN, are to verify your identity, to determine your eligibility to receive a loan or a benefit on a loan (such as a deferment, Forbearance, discharge or forgiveness) under the FFELP, to permit the servicing of your loan(s), and, if it becomes necessary, to locate you and to collect on your loan(s), if your loan(s) become delinquent or in default. We also use your SSN as an account identifier and to permit you to access your account information electronically.”

• The Application and Loan Agreement for private loans contains the following notice:

IMPORTANT INFORMATION ABOUT PROCEDURES FOR OPENING A NEW ACCOUNT To help the government fight the funding of terrorism and money laundering activities, Federal law requires all financial institutions to obtain, verify, and record information that identifies each person who opens an account. What this means for you: When you open an account, we will ask for your name, address, date of birth, and other information that will allow us to identify you. We may also ask to see your driver’s license or other identifying documents.

Page 26 of 30

Addendum B

Dictionary of Defined Terms

Term	Definition
Account	Refers to each Loan approved per application.
Active Duty	As defined in the Servicemembers Civil Relief Act.
Application	The electronic process or document used to collect data from the Program Applicant (i.e., name, address, Social Security number, date of birth, school information, etc.) to initiate a request for a Loan.
Borrower	The person who applies for and receives the benefit of the education loan.
Clearinghouse	The National Student Clearinghouse, a non-profit organization headquartered in Herndon, Virginia, or its successors.
Collection	The actions taken by a Lender or Servicer to collect payments due from the Borrower.
Disbursements	The transfer of Loan funds from the Originating Lender via Electronic Funds Transfer (EFT) for the benefit of the borrower.
Full Payment	A payment that is within 10% of the amount due but not more than $5.00 less than the amount due.
Loan	A consummated Application and Loan Agreement that is evidenced by a disbursement and has been signed by the Borrower.
Loan Agreement	The document that is incorporated by reference into the Application that has been signed by the Borrower containing the terms of the Loan.
Loan Period	The academic year or portion thereof for which the Program Applicant is enrolled and is seeking a loan.
Servicer	First Associates.

Page 27 of 30

Addendum C

OFAC Procedure

OFAC Hit

Steps: 1.      When an application is initiated, the Program Applicant’s name is automatically checked against the OFAC database for a match. When there is no match, the application continues processing in a normal fashion.   2.      If name is a match, the information required by the Customer Information Program (found in Addendum A) is collected by Origination Agent.   3.      Following completion of Step 2, the application is forwarded to the Servicer’s Originations and Disbursement Manager.   a.      The Originations and Disbursement Manager will re-verify the match and if applicable, contact OFAC’s “hotline” at 1-800-540-6322 for verification.   b.      If OFAC confirms a true hit, there are additional reporting requirements that are required to be in compliance.   c.      If OFAC confirms a true hit, the Originations and Disbursement Manager will also contact Liberty Bank.

Page 28 of 30

Addendum D

Reconsideration Procedure

Access Group’s Reconsideration Policy and Procedures

My loan request was denied. Will Access Group take a second look at my request?

YES! Our policy is to allow a one-time reconsideration of your loan application on behalf of Liberty Bank, N.A. All reconsiderations must be concluded within 60 days of your initial denial. In requesting reconsideration, you are authorizing us to obtain a copy of your credit bureau report, which we will do within 60 days. In order to facilitate a thorough and timely review, all requests for reconsideration must be submitted in writing.

Your correspondence should specifically address the items listed in the enclosed denial letter and be accompanied by appropriate documentation (please list your Social Security number in your letter or fax).

All reconsideration requests should be mailed to:

Access Group, Inc.

Credit Reconsideration Dept.

P.O. Box 7410

Wilmington, DE 19803-0410

Or, you may fax your correspondence to:

Access Group, Inc.

Credit Reconsideration Dept.

(302) 477-4296

What information was used in initially denying my loan request?

We have relied upon the information contained in your credit report. Your credit report contains detailed information on your past credit history and performance. Access Group, on behalf of Liberty Bank, N.A., evaluates the information found in your credit report.

What information will be used in reconsidering this initial decision?

We will reconsider your loan application based solely on errors in your credit report, which are called to our attention or negative items you are able to correct. For this reason, we strongly urge you to get a copy of your credit report, free of charge, from the credit agency listed on the enclosed denial letter. In your correspondence with us, please list the errors you find on the report. Only errors evidenced by a corrected credit report, obtained by the Access Group directly from the credit agency, will be considered.

What procedures do I follow to have my application reconsidered?

1. Carefully read the enclosed denial letter.

2. Order a copy of your credit report by calling the consumer credit reporting agency listed in your letter.

3. Check your credit report for accuracy and report any errors by calling the consumer credit reporting agency directly and by contacting each reporting creditor who is a source of an error. In some cases, credit reports reflect issues with creditors or have reporting errors about which you may be unaware. To help ensure a timely response, we suggest that you send correspondence to the consumer credit reporting agency via registered mail.

Page 29 of 30

Addendum E

Originating Lender’s Privacy Policy

Liberty Bank, N.A.

25201 Chagrin Blvd., Suite 120

Beachwood, OH 44122-5600

Securing Your Financial Privacy

PRIVACY DISCLOSURE

Liberty Bank, N.A. is committed to the strong tradition of safeguarding our customers’ private financial information. Liberty Bank, N.A. collects, retains, and uses information about individual customers only when we believe it would be useful (and allowed by law) in administering our business and to provide products, services and other opportunities to customers. This information is obtained from application information, transaction information, and consumer report information. Liberty Bank, N.A. makes disclosures to third parties only as permitted by law. This privacy policy expresses Liberty Bank N.A.’s commitment to our customers.

INFORMATION WE COLLECT ABOUT YOU

We collect nonpublic personal information about you from the following sources:

• Information we receive from you on applications or other forms,

• Information about your transactions with us, our affiliates, or others,

• Information we receive from a consumer-reporting agency

NO DISCLOSURES OUTSIDE OF EXCEPTIONS

We do not disclose any nonpublic personal information about our customers or former customers to anyone, except as permitted by law.

CONFIDENTIALITY AND SECURITY

We restrict access to nonpublic personal information about you to those employees who need to know that information to provide products or services to you.

We maintain physical, electronic, and procedural safeguards that comply with federal standards to guard your nonpublic personal information.

ADDITIONAL INFORMATION

If you have any questions or concerns about the protection of your personal financial information, please feel free to contact us at (216)359-5500.

ISP Form – 06/2009

Page 30 of 30

SCHEDULE F

TERMINATION CRITERIA

This Agreement may be terminated pursuant to Section 5.02(E) as follows:

(A) if the Actual Cumulative Default Rate on any Loan Pool exceeds 120% (or 140% in the case of a Differentiated Loan Pool) of the applicable Maximum Cumulative Default Rate at the end of any month (a “Trigger Point”), after the 18th month following the month in which the first Serviced Loan in that Loan Pool enters Repayment, then:

(1) the Servicer must submit to the Guarantor and the Servicing and Collections Advisor an action plan, setting forth in reasonable detail the steps that the Servicer intends to take to improve the repayment performance of the Serviced Loans in that Loan Pool; and

(2) if the Actual Cumulative Default Rate on that Loan Pool exceeds 120% (or 140% in the case of a Differentiated Loan Pool) of the applicable Maximum Cumulative Default Rate as of the end of the month (the “Second Trigger Point”) that is six months following the Trigger Point with respect to that Loan Pool, then:

a. the Servicer must submit to the Guarantor and the Servicing and Collections Advisor an additional action plan, setting forth in reasonable detail the steps that the Servicer intends to take to improve the repayment performance of the Serviced Loans in that Loan Pool; and

b. If the Actual Cumulative Default Rate on that Loan Pool exceeds 120% (or 140% in the case of a Differentiated Loan Pool) of the applicable Maximum Cumulative Default Rate as of the end of the month that is six months following the Second Trigger Point, then either the Voting Party or the Servicer may terminate this Agreement by delivering, within 30 days after the date on which the Actual Cumulative Default Rate for the Loan Pool at issue was determined, notice of termination as provided in Section 5.02(E).

(B) If the Actual Cumulative Default Rate on any Loan Pool exceeds 300% of the applicable Maximum Cumulative Default Rate as of the end of any month after the ninth month following the month in which the first Serviced Loan in that Loan Pool enters Repayment, then the Voting Party may terminate this Agreement by delivering, within 30 days after the date on which the Actual Cumulative Default Rate for the Loan Pool at issue was determined, notice of termination as provided in Section 5.02(E).

(C) For purposes of this Schedule F:

(1) “Actual Cumulative Default Rate” shall mean, as of any date of determination and with respect to each Loan Pool, a fraction (expressed as a

1

percentage), the numerator of which is the aggregate outstanding principal balance (including capitalized fees and interest) of Defaulted Loans in that Loan Pool (as of the respective dates on which they became Defaulted Loans), net of gross recoveries on the Defaulted Loans in that Loan Pool, and the denominator of which is the aggregate outstanding principal balance (including capitalized fees and interest) of Serviced Loans in that Loan Pool acquired by the Trust (as of the respective dates on which they were acquired by the Trust) plus all interest that has been capitalized on the Serviced Loans in that Loan Pool after the respective dates of their acquisition; provided that, for purposes of both the numerator and the denominator, the principal amount of any Defaulted Loan shall cease accreting due to capitalization of interest as of the date it becomes a Defaulted Loan.

(2) “Differentiated Loan Pool” shall mean a Loan Pool in which the aggregate outstanding principal balance of Serviced Loans in such Loan Pool the Borrower of which graduated from a School is less than 70% of the aggregate outstanding principal balance of all Serviced Loans in such Loan Pool, each determined as of the date on which the last Serviced Loan in that Loan Pool enters Repayment.

(3) “Loan Pool” shall mean each group of Serviced Loans with an aggregate outstanding principal balance (as of the respective dates on which the Serviced Loans enter Repayment) of as close as practicable to (but not less than) $100,000,000, determined on a first-in-time-of-entering-Repayment basis until such balance reaches $100,000,000; provided that (i) if, at the time that such balance of a prospective Loan Pool reaches $100,000,000, the disbursed amount (i.e., without giving effect to capitalization of fees and interest) of all remaining Serviced Loans that have not yet been included in a Loan Pool is less than $60,000,000, that Loan Pool will include all remaining Serviced Loans, and (ii) if clause (i) does not apply, a separate Loan Pool will be created, without regard to whether it ultimately reaches $100,000,000.

(4) “Maximum Cumulative Default Rate” shall mean the applicable percentage set forth in the table below, based on the month being measured (with month 0 being the month in which the first Serviced Loan in the applicable Loan Pool enters Repayment):

2

Month	Maximum Cumulative Default Rate
10		11.667	%
11		12.833	%
12		14.000	%
13		14.729	%
14		15.458	%
15		16.188	%
16		16.917	%
17		17.646	%
18		18.375	%
19		19.104	%
20		19.833	%
21		20.563	%
22		21.292	%
23		22.021	%
24		22.750	%
25		23.333	%
26		23.917	%
27		24.500	%
28		25.083	%
29		25.667	%
30		26.250	%
31		26.833	%
32		27.417	%
33		28.000	%
34		28.583	%
35		29.167	%

Month	Maximum Cumulative Default Rate
36		29.750	%
37		30.042	%
38		30.333	%
39		30.625	%
40		30.917	%
41		31.208	%
42		31.500	%
43		31.792	%
44		32.083	%
45		32.375	%
46		32.667	%
47		32.958	%
48		33.250	%
49		33.396	%
50		33.542	%
51		33.688	%
52		33.833	%
53		33.979	%
54		34.125	%
55		34.271	%
56		34.417	%
57		34.563	%
58		34.708	%
59		34.854	%
60 and thereafter		35.000	%

3

EX-10.51

EXHIBIT 10.51

Execution Copy

PURCHASE OBLIGATION AGREEMENT

This PURCHASE OBLIGATION AGREEMENT (this “Agreement”) is dated as of January 20, 2010 and is by and among ITT EDUCATIONAL SERVICES, INC., a Delaware corporation (the “Guarantor”), DEUTSCHE BANK TRUST COMPANY AMERICAS, as indenture trustee and collateral agent (in such capacities, the “Secured Party”) and each of the Senior Creditors (as hereinafter defined) whose names appear on the signature pages hereof.

RECITALS

A. The Guarantor offers certain programs of education through schools that it owns and operates.

B. PEAKS Trust 2009-1 (the “Trust”) has been established pursuant to a Trust Agreement dated as of December 23, 2009 (as amended, supplemented, restated or otherwise modified from time to time, the “Trust Agreement”), between Access Group, Inc., as depositor, and Deutsche Bank Trust Company Delaware, as owner trustee, for the purpose of purchasing and holding loans made to students attending the Guarantor’s schools.

C. The Trust Agreement and that certain Indenture and Credit Agreement dated as of the date hereof (as amended, supplemented, restated or otherwise modified from time to time, the “Indenture and Credit Agreement”) by and among the Trust, the Secured Party and the Lender Trustee, provide for student loan asset-backed senior notes to be issued by the Trust (the “Senior Notes”) to provide a portion of the funds for the Trust to purchase and hold Financed Loans.

D. The Senior Notes will be purchased by certain of the Senior Creditors pursuant to a Note Purchase Agreement dated as of the date hereof between the Trust and the Note Purchasers (as defined therein) and acknowledged by the Secured Party (as amended, supplemented, restated or otherwise modified from time to time, the “Note Purchase Agreement”).

E. The Trust Agreement and the Indenture and Credit Agreement also provide for the terms of a loan (the “Loan” and together with the Senior Notes, the “Senior Credit”) to be made to the Trust in order to provide a portion of the funds for the Trust to purchase and hold Student Loans.

F. The Loan will made by a lender (the “Lender” and together with the Note Purchasers, the “Senior Creditors”) to the Trust pursuant to a Loan Agreement (as amended, supplemented, restated or otherwise modified from time to time, the “Loan Agreement”) dated as of the date hereof between the Trust, the Secured Party and such Lender.

G. The proceeds of the Senior Credit will be used to purchase Financed Loans pursuant to that certain Private Education Loan Origination and Sale Agreement dated as of the date hereof among Liberty Bank, N.A., as Originating Lender, the Guarantor, the Lender Trustee, the Secured Party and Access Group, Inc. as Origination Agent (as amended, supplemented, restated or otherwise modified from time to time, the “Loan Purchase Agreement”).

H. The Guarantor has agreed to guarantee all Guaranteed Payments in respect of the Senior Credit pursuant to the terms of that certain Guarantee Agreement dated as of the date hereof between the Guarantor and the Secured Party (as amended, supplemented, restated or otherwise modified from time to time, the “Guarantee Agreement”).

I. The Senior Creditors desire that the Guarantor grant the Senior Creditors an option pursuant to which such Senior Creditors may elect to require the Guarantor to purchase, in whole or in part, the Senior Credit, on the terms herein described.

J. The parties desire to provide for the amendment of this Agreement in certain circumstances.

K. Capitalized terms used but not defined herein (including in the preamble and the recitals hereto) shall have the meanings assigned to such terms in the Indenture and Credit Agreement.

I. PURCHASE OBLIGATION AND MOST FAVORED NATION PROVISION

1. The Guarantor hereby grants to the Senior Creditors an irrevocable option to require the Guarantor to purchase (the “Purchase Obligation”), in whole or in part, the Senior Credit, in the circumstances and on the terms set forth below:

1.1. If, subsequent to the Closing Date, any legislative change is enacted into law to reduce the maximum allowable percentage of the Guarantor’s cash revenues derived from funding under Title IV of the Higher Education Act from 90% to 75% or less (a “Legislative Change”), the Guarantor will give written notice (a “Purchase Notice”) of such fact not more than five (5) days after the date upon which a Legislative Change shall have become effective (the “Legislative Change Date”) to the Secured Party and the Secured Party shall deliver such Purchase Notice to each of the Senior Creditors not more than five (5) days after receipt of the same from the Guarantor.

1.2. The Purchase Notice shall (i) describe the scope of the Legislative Change in reasonable detail, (ii) designate a purchase date (the “Purchase Date”), which Purchase Date shall be not less than forty (40) days and not more than sixty (60) days following the Legislative Change Date, (iii) specify the date by which the Senior Creditors must accept the Offer to Purchase (the “Required Acceptance Date”), which

- 2 -

Required Acceptance Date shall be not less than ten (10) days prior to the Purchase Date and (iv) refer to this Agreement and the right of the Senior Creditors to require the Guarantor to offer to purchase (the “Offer to Purchase”) upon the same terms and conditions pro rata the Outstanding Senior Credit, in whole or in part, at the purchase price for such Senior Credit, payable in immediately available funds, equal to the unpaid principal amount of such Senior Credit, together with interest accrued and unpaid thereon to the Purchase Date (the “Purchase Amount”), without Call Premium or any other amounts.

1.3. Each Senior Creditor shall have the right to accept an Offer to Purchase made by the Guarantor pursuant to Section 1.2 hereof and require the purchase of the Senior Credit held by such Senior Creditor, in whole or in part, by written notice (the “Senior Creditor Acceptance Notice”) to the Guarantor on or before the Required Acceptance Date. If 25% or more of the Senior Credit then Outstanding is tendered to the Guarantor for purchase, the Guarantor shall promptly notify or cause the Secured Party to notify the Senior Creditors of such fact (the “25% Acceptance Notice”) and (i) the Required Acceptance Date shall be adjusted by the number of days necessary to give each such remaining Senior Creditor at least thirty (30) days from its receipt of such 25% Acceptance Notice to accept such Offer to Purchase and (ii) the Purchase Date shall be extended such that the number of days between the Required Acceptance Date and the Purchase Date shall remain unchanged. Failure to timely respond by a Senior Creditor to any Purchase Notice or 25% Acceptance Notice shall constitute a rejection of the Offer to Purchase by such Senior Creditor.

1.4. On the Purchase Date, upon receipt of the applicable Purchase Amount by each Senior Creditor having delivered a Senior Creditor Acceptance Notice to the Guarantor as to all or any portion of such Senior Creditor’s then Outstanding Senior Credit, such Senior Creditor shall surrender the Senior Notes or Loan Notes corresponding to such portion of the then Outstanding Senior Credit for transfer, duly endorsed or accompanied by an assignment to the Guarantor duly executed by such Senior Creditor, and the Trust shall deliver on the Purchase Date such new Senior Notes or Loan Notes reflecting the Guarantor as a Senior Creditor as may be required in accordance with the terms of Section 2.03 of the Indenture and Credit Agreement. The Trust and the Secured Party undertake and agree that notwithstanding the terms of said Section 2.03 and the right of the Trust, the Secured Party and the Registrar to execute, authenticate and register, respectively, any Senior Note or Loan Note within ten Business Days upon surrender at the Principal Office of the Registrar, the parties shall effect any transfer of Senior Notes or Loan Notes in respect of the Purchase Obligation on the Purchase Date.

2. In furtherance of the transactions described in the Trust Agreement, the Indenture and Credit Agreement, the Note Purchase Agreement, the Loan Agreement, the Loan Purchase Agreement and the Guarantee Agreement, the Trust has entered into the several related

- 3 -

transactions contemplated by that certain (i) Administration Agreement, dated as of the date hereof, among the Trust, the Owner Trustee, the Guarantor, Access Group, Inc., as Administrator, and the Secured Party (as amended, supplemented, restated or otherwise modified from time to time, the “Administration Agreement”), (ii) Syndication Agent Agreement dated as of the date hereof among the Trust, Deutsche Bank Securities Inc., as Syndication Agent, and the Guarantor (as amended, supplemented, restated or otherwise modified from time to time, the “Syndication Agreement”), and (iii) Agreement for Servicing Private Student Loans, dated as of the date hereof, among the Trust, the Secured Party, the Guarantor and Access Group, Inc., as Servicer (as amended, supplemented, restated or otherwise modified from time to time, the “Servicing Agreement”) (the transactions contemplated by the agreements referenced in this Section 2, collectively, the “PEAKS 2009-1 Transaction”).

3. The Guarantor covenants and agrees that in the event that the Guarantor enters into a transaction related to private education loans for its students and graduates that (i) is similar, in form or substance, to the PEAKS 2009-1 Transaction, and in which Deutsche Bank Securities Inc. (or an affiliate thereof) acts as arranging agent, collateral agent, placement agent, syndication agent, indenture trustee, lender trustee or owner trustee and in which the Guarantor guarantees payments on any loan, note or other debt obligation (each, a “Debt Obligation”) issued in connection therewith (a “Similar Transaction”), and (ii) contains an obligation of the Guarantor to purchase, in whole or in part, any Debt Obligation in the event that the maximum allowable percentage of the Guarantor’s cash revenues derived from funding under Title IV of the Higher Education Act is reduced from 90% to a percentage above 75% but below 90%, then the Guarantor shall (A) on the Business Day immediately following the closing date of such Similar Transaction, provide the Secured Party with notice and a description of the obligation of the Guarantor contained in the Similar Transaction (the “Similar Transaction Notice”), and (B) execute an amendment to this Agreement that increases the percentage from 75% in the definition of Legislative Change to the percentage utilized in the Similar Transaction.

4. The Secured Party covenants and agrees to deliver any Similar Transaction Notice to the Senior Creditors not more than five (5) days after receipt of the same from the Guarantor.

II. MISCELLANEOUS PROVISIONS

5. Any notice or other communication required or permitted hereunder shall be in writing and shall be delivered either personally or by next day courier, in each case, addressed as follows:

(a) if to the Guarantor or the Secured Party, at the address set forth in the Indenture and Credit Agreement; and

(b) if to any Senior Creditor, at the address set forth in the Credit Register maintained by the Credit Registrar, together with a copy to the Senior Creditors’ counsel: Winston & Strawn LLP, 200 Park Avenue, New York, New York 10166, Attn: Alan S. Hoffman, Esq.,

- 4 -

or at such other place as the respective party may, from time to time, designate in a written notice to the other party.

6. This Agreement and all of the provisions hereof shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns including in connection with an assignment or transfer of the Senior Credit pursuant to the terms of the Indenture and Credit Agreement.

7. Notwithstanding anything contained herein to the contrary, this instrument has been executed by Deutsche Bank Trust Company Delaware, not in its individual or personal capacity but solely in its capacity as Owner Trustee, and in no event shall Deutsche Bank Trust Company Delaware in its individual or personal capacity or any beneficial owner of the Issuer have any liability for the obligations of the Trust hereunder.

8. This Agreement is governed by, and shall be construed in accordance with, the laws of the State of New York.

9. In connection with any suit, claim, action or proceeding arising out of or relating to the transactions contemplated hereby: each party hereto hereby consents to the in personam jurisdiction of the United States District Court for the Southern District of New York and of the Supreme Court of New York County (and each party hereto agrees not to commence any action, suit or proceeding relating thereto except in any such United States District Court or, if subject matter jurisdiction therefor is not available in such court, in such Supreme Court); each party hereto agrees that service by prepaid recorded delivery or registered post, or any other form equivalent thereto (or, in the alternative, by any other means sufficient under applicable law, rules and regulations) at the addresses referred to in Section 5 hereof shall be valid and sufficient for all purposes and hereby waives to the fullest extent it may effectively do so any challenges to the validity of service of process if service is given in accordance herewith; and each party hereto agrees to, and irrevocably waives to the fullest extent it may effectively do so any objection based on forum non conveniens or venue not to appear in such courts.

10. EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO ANY OF THE AGREEMENTS AND FOR ANY COUNTERCLAIM THEREIN.

11. The Guarantor acknowledges that the Senior Creditors will have no adequate remedy at law if the Guarantor fails to perform its obligations under this Agreement. In such event, the Guarantor agrees that the Senior Creditors shall have the right, in addition to any other rights it may have, to specific performance of such obligations and that the Guarantor will not take any action to impede the Senior Creditor’s efforts to enforce such right of specific performance.

12. If, at any time, any provision hereof is or becomes illegal, invalid or unenforceable in any respect under the law of any jurisdiction, neither the legality, validity or enforceability of the remaining provisions hereof nor the legality, validity or enforceability of such provision under the law of any other jurisdiction shall in any way be affected or impaired thereby.

- 5 -

13. This Agreement shall continue in force and effect until the earlier of: (i) the Senior Credit being paid in full and (ii) the purchase of the Senior Credit in full by the Guarantor as described in Section 1, at which time this Agreement shall terminate and be of no further force and effect.

14. This Agreement constitutes the only agreement between the parties relating to the Purchase Obligation granted hereunder and supersedes and extinguishes any prior drafts, agreements, undertakings, representations, warranties and arrangements of any nature whatsoever, whether or not in writing, relating thereto.

15. This Agreement may be executed in multiple counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

[Remainder of Page Intentionally Left Blank]

- 6 -

IN WITNESS WHEREOF, the parties have hereunto signed their names as of the date first above written.

ITT EDUCATIONAL SERVICES, INC.
By:	/s/ Kevin M. Modany
Name:	Kevin M. Modany
Title:	Chairman and CEO
DEUTSCHE BANK TRUST COMPANY AMERICAS, as Secured Party
By:	Deutsche Bank National Trust Company
By:	/s/ Susan Barstock
Name:	Susan Barstock
Title:	Vice President
By:	/s/ Mark DiGiacomo
Name:	Mark DiGiacomo
Title:	Assistant Vice President
LIBERTY HARBOR MASTER FUND I, L.P.
By:	Liberty Harbor I GP, LLC, its general partner
By:	/s/ Jonathan Lamm
Name:	Jonathan Lamm
Title:	Authorized Signatory
FUTURE FUND BOARD OF GUARDIANS
By: Goldman Sachs Asset Management, L.P., its investment manager
By:	/s/ Jonathan Lamm
Name:	Jonathan Lamm
Title:	Authorized Signatory

WELLS FARGO BANK, N.A.
By	/s/ George Wick
Name:	George Wick
Title:	Executive Vice President
DEUTSCHE BANK AG, LONDON BRANCH
By	/s/ Baxter Wasson
Name:	Baxter Wasson
Title:	Director
By	/s/ Nir Vidre
Name:	Nir Vidre
Title:	Managing Director
OREGON PUBLIC EMPLOYEES RETIREMENT FUND
By	/s/ Mark Casanova
Name:	Mark Casanova
Title:	Authorized Signatory
KKR FI PARTNERS I L.P.
By	/s/ Mark Casanova
Name:	Mark Casanova
Title:	Authorized Signatory

USAA LIFE INSURANCE COMPANY
By	/s/ John C. Spear
Name:	John C. Spear
Title:	VP Insurance Portfolio
ENSIGN PEAK ADVISORS, INC.
By	/s/ Robert Nydegger
Name:	Robert Nydegger
Title:	VP
By	/s/ Kevin Lund
Name:	Kevin Lund
Title:	Vice President
AMERICAN EQUITY LIFE INSURANCE COMPANY
By	/s/ Greg Carstensen
Name:	Greg Carstensen
Title:	VP - Investments

Section 1.4 of this Agreement is hereby

acknowledged and agreed to as of the

date thereof.

PEAKS TRUST 2009-1, a Delaware statutory

trust

By:	DEUTSCHE BANK TRUST COMPANY
	DELAWARE, not in its individual capacity
	or personal capacity but solely in its capacity
	as Owner Trustee
By	/s/ Susan Barstock
Name	Susan Barstock
Title	Attorney-in-fact
By	/s/ Mark DiGiacomo
Name	Mark DiGiacomo
Title	Attorney-in-fact

EX-10.53

EXHIBIT 10.53

RISK SHARING AGREEMENT

This RISK SHARING AGREEMENT (this “Agreement”), dated as of February 20, 2009 (“Effective Date”) is made between ITT EDUCATIONAL SERVICES, INC., a Delaware corporation, on behalf of itself and its affiliates and subsidiaries (“ITT ESI”) and STUDENT CU CONNECT CUSO, LLC, a Delaware limited liability company operating as a credit union service organization (the “CUSO”).

ARTICLE I

PURPOSE AND SCOPE

SECTION 1.1 Purpose and Scope. Pursuant to the Program Agreement, the CUSO intends to conduct the Program utilizing the Originating Entity to provide access for Students across the country to non-governmentally guaranteed student loans. The Originating Entity will originate Loans to Students. The CUSO will purchase Loans creating discrete annual pools based on dates of disbursement of Loan proceeds. The CUSO will then participate its interest in the Loans among the Credit Unions. To induce the CUSO to both induce the Originating Entity to originate Loans and itself purchase such Loans and to induce the Credit Unions to participate therein, ITT ESI has agreed to provide a guarantee for the Loans upon and subject to the terms and conditions of this Agreement.

ARTICLE II

DEFINITIONS

SECTION 2.1 Special Definitions. Terms used in this Agreement and not otherwise specifically defined herein shall have the respective meanings provided in Schedule A. Schedule A and all other Schedules and Exhibits referred to in this Agreement are attached to and made a part of this Agreement.

SECTION 2.2 Other Definitional Terms.

(a) As used in this Agreement, (i) accounting terms not defined herein and (ii) accounting terms partly defined herein to the extent not defined, will have the respective meanings given to them under GAAP.

(b) The words “herein” and words of similar import when used in this Agreement refer to this Agreement as a whole and not to any particular provision of this Agreement. Sections and Subsections references are to this Agreement unless otherwise specified.

(c) As used in this Agreement, words of masculine gender include the feminine or neuter genders and vice versa, where applicable. Words of the singular number include the plural number, and vice versa, where applicable.

ARTICLE III

ITT ESI RISK LOANS

SECTION 3.1 ITT ESI Guaranty. ITT ESI shall have no liability whatsoever with respect to any Loans in any Loan Pool unless and until such time as the aggregate amount that is Charged Off on Loans in such Loan Pool exceeds the First Loss Risk for such Loan Pool. ITT ESI hereby absolutely and unconditionally guarantees the full and prompt payment of all the ITT ESI Risk Loans in each Loan Pool, as and in the manner hereinafter provided. For example, if a Loan Pool consists of Loans the aggregate Net Disbursements on which are $100,000,000 and the applicable First Loss Percentage for such Loan Pool is thirty-five percent (35%), once an aggregate of $35,000,000 has been Charged Off on Loans in such Loan Pool, ITT ESI will have an obligation to make payments required under this Article III.

SECTION 3.2 Monthly Report. So long as any Loans are outstanding in any Loan Pool, the CUSO shall provide or cause to be provided to ITT ESI on or before the tenth (10^th) Business Day after the CUSO has received its regular monthly report from the Servicer, a Monthly Report on such Loan Pool as of the end of the month that is the subject of such report from the Servicer.

SECTION 3.3 Claim Package. Each Monthly Report for a Loan Pool shall also be accompanied by a Claim Package.

SECTION 3.4 Payments. Within fifteen (15) days (or on the next Business Day if such 15^th day is not a Business Day) after receipt of the last of the required information, ITT ESI shall transfer, via electronic transfer, payment of the full amount of any ITT ESI Risk Payment due for such month (net of the amount, if any, due to ITT ESI pursuant to Section 4.1 hereof) to such account as the CUSO may from time to time in writing designate to ITT ESI not less than ten (10) days before the due date of any ITT ESI Risk Payment.

SECTION 3.5 Repayment of Risk Share Payment. In the event that ITT ESI shall make any ITT ESI Risk Payment pursuant to Section 3.4 (directly or by way of offset), the CUSO shall reimburse ITT ESI therefor to the extent and in the manner provided in Article IV hereof.

SECTION 3.6 Mature Loans. Notwithstanding the provisions of Section 3.4, ITT ESI may, by written notice to the CUSO, elect to discharge all its obligations under this Article III in respect of any Mature Loan for which an ITT ESI Risk Payment is then due by both (i) giving written notice thereof to the CUSO not less than five (5) days before the due date for such ITT ESI Risk Payment and (ii) remitting, with such ITT ESI Risk Payment, the then outstanding balance plus accrued unpaid interest of such Mature Loan as reflected in the then current Monthly Report. ITT ESI may also discharge all its obligations under this Article III in respect of any Charged Off Loan on which an ITT ESI Risk Payment is due but which is not yet a Mature Loan by giving the notice required with respect to a Mature Loan and, in addition to the payment required for a Mature Loan, paying an amount equal to any additional interest that would otherwise have been payable before such Loan became a Mature Loan, subject to discount at the rate of ten percent (10%) per annum. The CUSO shall reimburse ITT ESI for all payments made pursuant to this Section 3.6 to the extent and in the manner provided in Article IV hereof. Loans as to which ITT ESI has discharged all its obligations under this Article III pursuant to this Section 3.6 shall, upon the payment provided for in this Section, no longer be considered an ITT ESI Risk Loan for any purpose under this Agreement. ITT ESI may, on reasonable notice to the CUSO and the Servicer, remove from servicing by the Servicer any Loans on which ITT ESI has discharged its obligations under Article III pursuant to this Section 3.6 (each a “Removed Loan”) and, after such removal, neither the CUSO nor the Servicer shall have any further servicing obligations or liabilities for any Removed Loan, other than the obligation to cooperate with ITT ESI’s reasonable requests for administrative items (but their obligations and liabilities therefor arising prior to such removal shall be unaffected thereby). Notwithstanding the foregoing, the CUSO shall continue to own all Removed Loans and they shall remain a part of the Loan Pool for the Funding Year in which they were originally disbursed. ITT ESI shall cause collected proceeds of Removed Loans, net of third party collection costs, to be remitted to or as directed by the CUSO (to be thereafter paid to ITT ESI, as provided in Article IV to the extent of the CUSO’s reimbursement obligation pursuant to Section 3.5 and Section 3.6).

2

SECTION 3.7 Nature of Guarantee. ITT ESI’s obligations hereunder are joint and several and independent of the obligations of any Borrower and any other guarantor. ITT ESI’s obligations hereunder shall remain in effect until all Loans in each Loan Pool are either paid in full or ITT ESI has discharged its obligations with respect thereto pursuant to Sections 3.4 and 3.6, notwithstanding any act, omission or thing that might otherwise operate as a legal or equitable discharge of ITT ESI or any Borrower, except any that otherwise arises as a result of the fraudulent or grossly negligent action or inaction or willful misconduct of the CUSO. ITT ESI’s obligations hereunder are independent of and not in consideration of, or contingent upon, the liability of any other person under any guarantee, surety or similar obligation, such as the obligation of a co-signer. The release of or death of, or cancellation by, any person or entity responsible under any such guarantee, surety or similar obligation will not act to release or otherwise affect the continuing liability of ITT ESI; provided that any such release or cancellation is not a result of, or caused by, the fraudulent or grossly negligent action or inaction or willful misconduct of the CUSO. Any partial payment by any Borrower or other circumstance which operates to toll any statute of limitations as to any Borrower will operate equally to toll the statute of limitations as to ITT ESI. Notwithstanding the foregoing, ITT ESI shall have no liability hereunder in respect of any Loan as to which there is a breach of any representation or warranty by the CUSO set forth in the Program Agreement, excepting only (a) any breach that is the direct result of any fraud, willful misconduct or gross negligence by ITT ESI, and (b) any breach by the CUSO of Section 2.16(a) of the Program Agreement that is the direct result of either (i) an error by the Origination Vendor or (ii) the failure by the Origination Vendor to comply with instructions of the Originating Entity, in each case in connection with the origination of such Loan.

SECTION 3.8 Information and Audit Rights.

(a) The CUSO shall cause the Servicer to provide to ITT ESI and any designee of ITT ESI all reports (both regular and special) and other data which the Servicer shall provide to the CUSO contemporaneously with such provision and in the same format as is provided to the CUSO.

(b) Promptly upon request therefor, the CUSO shall provide to ITT ESI such information regarding the Loans as ITT ESI may, from time to time, request, including, without limitation, information regarding the servicing and collection of the Loans and any alterations made to any Loans, as provided in Section 3.9.

3

(c) Upon at least five (5) Business Days prior notice to the CUSO, ITT ESI shall be afforded access to all documents and records relating to Loans and/or the Program to inspect and audit the same (either itself or through a third-party auditor). Any such inspection or audit shall be at ITT ESI’s sole expense; provided, however, that if any such inspection or audit shall reveal that the records or reporting with respect to any Loan Pool reflect material inaccuracies with respect to Loans, the Net Disbursements on which aggregate in excess of 10% of the aggregate Net Disbursements on all Loans in such Loan Pool, then, within ten (10) days of demand therefor by ITT ESI, the CUSO shall reimburse ITT ESI for its out-of-pocket costs for such inspection or audit, including without limitation the fees and costs of any third-party auditor.

SECTION 3.9 Alteration of Borrower Obligations. From time to time, the CUSO may modify or renew terms of any Loan (or any documentation or collateral therefor), without thereby releasing ITT ESI from its guarantee provided that such modification is within the Loan Criteria or the Collection and Charge Off Standards. However, any alteration described above that reduces the amount that a Borrower is obligated to pay under a Loan will similarly reduce ITT ESI’s guarantee obligations with respect thereto. Further, any forbearance, revision, modification, extension, amendment, or other change to any Loan in any manner inconsistent with the Loan Criteria or the Collection and Charge Off Standards, will disqualify such Loan as an ITT ESI Risk Loan.

SECTION 3.10 Multiple Disbursements. The parties acknowledge that individual Loans may be funded in multiple disbursements and, as a result, funded over different Funding Years. For all purposes under this Agreement, a Loan will be deemed made in a Funding Year only to the extent disbursed in that Funding Year regardless of when originated. For example, assuming a $9,000 Loan disbursed in three (3) equal parts, one (1) in Funding Year 2009 and two (2) in Funding Year 2010, the initial $3,000 disbursement would be deemed a separate Loan that would be included in the Loan Pool for Funding Year 2009 and the later $6,000 aggregate disbursements would be deemed a separate Loan that would be included in the Loan Pool for Funding Year 2010.

SECTION 3.11 Certain Loans. Notwithstanding any other provision of this Agreement, any Loan procured through fraud, willful misconduct or gross negligence by an ITT ESI employee shall, upon written notice from the CUSO to ITT ESI (identifying such Loan and describing the fraud, willful misconduct or gross negligence by the ITT ESI employee), be deemed a Charged Off ITT ESI Risk Loan without regard to whether the First Loss Risk for the applicable Loan Pool has been exceeded. ITT ESI may, at any time, discharge its obligations with respect to any such Loan as if it were a Mature Loan subject to Section 3.6, regardless of the number of monthly payments made thereon and, in such event, any such Loan shall no longer be considered an ITT ESI Risk Loan for any purpose under this Agreement.

SECTION 3.12 Benefit to Credit Unions. It is acknowledged and agreed both that (i) the Credit Unions will indirectly benefit from the guaranty and other obligations undertaken by ITT ESI pursuant to this Agreement, the Security Agreement and the Program Agreement and (ii) enforcement of such guaranty and obligations shall be effected exclusively through the CUSO.

4

ARTICLE IV

REPAYMENT OF ITT ESI/APPLICATION OF

CHARGED OFF LOAN PROCEEDS

SECTION 4.1 Repayment of ITT ESI/Application of Proceeds of Charged Off Loans. The CUSO’s reimbursement obligations pursuant to Section 3.5 and Section 3.6 shall be payable by the CUSO only to the extent that collected proceeds in respect of Charged Off Loans in the Loan Pool to which such reimbursement obligations relate (whether subject to First Loss Risk or an ITT ESI Risk Loan, and any Loans as to which ITT ESI has discharged its obligations pursuant to Section 3.4, Section 3.6, or Section 3.11) are received by or on behalf of the CUSO while there are any such unsatisfied reimbursement obligations. For the avoidance of confusion, once ITT ESI has made any ITT ESI Risk Payment or other payment pursuant to Article III on any Loan Pool, until such time as ITT ESI has recovered all ITT ESI Risk Payments or other payment pursuant to Article III made (or offset) on such Loan Pool, it shall be entitled to all proceeds of all Charged Off Loans in such Loan Pool until ITT ESI has been fully reimbursed therefor. Thereafter, ITT ESI shall be entitled to no proceeds on such Charged Off Loans unless and until it again makes an ITT ESI Risk Payment or other payment pursuant to Article III (or offset) on such Loan Pool. By way of further clarification, ITT ESI is not entitled to reimbursement on any Loans that are not Charged Off Loans, whether they be First Risk Loans or ITT ESI Risk Loans.

SECTION 4.2 Timing and Manner of Payment. Any sums payable to ITT ESI in respect of a Charged Off Loan pursuant to Section 4.1 shall be paid to ITT ESI at the time and in the same manner as payment is required to be made to Credit Unions that are participants in the Loan Pool of which such Charged Off Loan is a part.

Section 4.3 Disclosure. The CUSO shall disclose to all Credit Unions ITT ESI’s right to proceeds of Charged Off Loans pursuant to Section 4.1. The CUSO agrees, and all participation certificates shall provide, that the rights of the CUSO and each Credit Union in respect of proceeds of Charged Off Loans are expressly subordinated to the rights thereto of ITT ESI hereunder.

ARTICLE V

TERM/TERMINATION; SERVICING

SECTION 5.1 Term. This Agreement shall be for an Initial Term commencing on the Effective Date and ending December 31, 2011 and shall automatically renew for successive Renewal Terms of one (1) year each, unless not less than one (1) year prior to the end of the Initial Term or any Renewal Term, either party hereto shall provide notice to the other party of either (i) such party’s intent to terminate this Agreement as of the end of the then current Term, or (ii) its desire that the First Loss Percentage and/or the Collateralization Percentage be changed for the Renewal Term (indicating the First Loss Percentage and/or the Collateralization Percentage desired). In the first such instance, this Agreement shall terminate as of the end of the then current Term. In the second such instance, the parties shall endeavor to negotiate in good faith for a First Loss Percentage and/or a Collateralization Percentage acceptable to all parties and, if they are successful, such First Loss Percentage and/or such Collateralization Percentage shall be the First Loss Percentage and/or the Collateralization Percentage for the succeeding Renewal Term and thereafter.

5

SECTION 5.2 Termination. If, in a situation to which clause (ii) of Section 5.1 is applicable, the parties are unsuccessful in negotiating a First Loss Percentage and/or a Collateralization Percentage acceptable to both parties by two hundred seventy (270) days before the end of the then current Term, this Agreement shall automatically terminate as of the end of the then current Term. This Agreement may also be terminated as provided in Section 8.4. Notwithstanding any other provision of this Agreement, this Agreement shall also automatically terminate upon termination of the Program Agreement, for any reason. In no event may ITT ESI terminate this Agreement other than at the end of the then current Term except in the case of an Event of Default by the CUSO or termination of the Program Agreement.

SECTION 5.3 Effect of Termination. Regardless of the reason for termination of this Agreement (including pursuant to Section 8.4(a)), (a) such termination will not affect the validity of any Loans made prior to such termination, (b) the existing obligations of the terminating party and the other party regarding such Loans shall remain in effect, and (c) all Loans originated while this Agreement is in effect shall remain subject to the terms of this Agreement until the last such Loan in the last Loan Pool has been paid in full.

SECTION 5.4 Loan Servicing. The CUSO, through a Servicer, will service all Loans in accordance with the terms of the Servicing Agreement and the Collection and Charge Off Standards. All Servicing Agreements, and all amendments or modifications thereto, shall be subject to ITT ESI’s prior approval. Errors and/or omissions by a Servicer shall not affect the obligations of either party hereunder.

ARTICLE VI

COLLATERALIZATION BY ITT ESI

SECTION 6.1 Collateralization by ITT ESI. So long as any Loans remain outstanding that are subject to ITT ESI obligations pursuant to Article III, ITT ESI shall secure its obligations thereunder with respect to each Loan Pool containing such Loans by pledging, as provided in the Security Agreement of even date herewith of which Exhibit 6.1 is a copy, Collateral in the form of cash, government or agency securities, and/or one or more letters of credit, all in an aggregate amount equal to (i) the Collateralization Percentage applicable to such Loan Pool times (ii) the product of (x) the First Loss Percentage applicable to such Loan Pool times (y) the then principal balance of all Loans in such Loan Pool that are subject to ITT ESI obligations pursuant to Article III, or, if the First Loss Risk has been exceeded, all ITT ESI Risk Loans in such Loan Pool. To the extent ITT ESI uses cash or government or agency securities, (a) such Collateral shall be held in a restricted account as Collateral for the benefit of the CUSO with one or more Designated Financial Institutions and subject to an appropriate account control or other similar security agreement in form and substance reasonably satisfactory to both the CUSO and ITT ESI; and (b) ITT ESI shall be entitled to all earnings thereon. If ITT ESI shall fulfill any part of its obligations pursuant to this Section 6.1 by providing any letter of credit, ITT ESI shall renew or provide substitute letters of credit (or establish a restricted account as above provided) therefor not less than ten (10) days before the expiration of any such letter of credit. During 2009, not less than two-thirds (2/3) of the Collateral required to be maintained shall consist of cash, government or agency securities. After the end of 2009, not less than one-third (1/3) of the Collateral required to be maintained for each Loan Pool shall consist of cash, government or agency securities; provided, however, that, if and so long as the Collateralization Percentage for the Loan Pool for Funding Year 2009 is increased pursuant to Section 6.3, not less than two-thirds (2/3) of the Collateral required to be maintained for such Loan Pool shall consist of cash, government or agency securities.

6

SECTION 6.2 Establishment and Adjustment of Collateral.

(a) Establishment of Initial Collateral for Each Funding Year. The initial collateralization for each Loan Pool for each Funding Year shall be determined for each Funding Period in each such Funding Year in accordance with the following: (i) not less than twelve (12) Business Days before the First Disbursement Date of the first Funding Period, in any Funding Year, ITT ESI shall both provide the CUSO with ITT ESI’s good faith estimate of the aggregate original sum to be disbursed on all Loans during such Funding Period and, on or before the First Disbursement Date of such Funding Period, shall provide the initial collateralization required for such Loan Pool for such Funding Period (based upon such estimate); (ii) within twelve (12) Business Days before the First Disbursement Date of each subsequent Funding Period in such Funding Year, ITT ESI shall provide the CUSO with ITT ESI’s good faith estimate of the original sum to be disbursed on all Loans during such subsequent Funding Period and, on or before the First Disbursement Date of such Funding Period, ITT ESI shall provide the initial collateralization required for such Funding Period, subject to adjustment as provided in clause (iv) hereof; (iii) not less than twelve (12) Business Days before the First Disbursement Date of a Funding Period other than the first Funding Period for a Funding Year, the CUSO shall provide ITT ESI with all of (1) a detailed summary of Loans then in the Loan Pool for such Funding Year, (2) the aggregate current balances of all Loans then in such Loan Pool and (3) the amount of Collateral that ITT ESI is required to maintain for the subject Loan Pool based on the formula set forth in Section 6.1; and (iv) if the amount of Collateral required based upon the summary provided in accordance with clause (iii) hereof exceeds or is exceeded by the amount of Collateral then provided by ITT ESI for the applicable Loan Pool pursuant to this Section, the amount of any deficiency shall be added to, and the amount of any excess shall be credited against, the amount of Collateral that ITT ESI is required to provide pursuant to clause (ii) hereof. Contemporaneously with each establishment and adjustment of Collateral pursuant to this Section 6.2(a), ITT ESI shall send evidence, reasonably satisfactory to the CUSO, of the amount of such Collateral actually provided. After the adjustment for the last Funding Period for a Loan Pool provided for at clause (iv) above, the amount of Collateral required with respect to such Loan Pool shall be adjusted as provided in Section 6.2(b).

(b) Adjustment of Collateral. Commencing with the fourth calendar quarter of the Funding Year for each Loan Pool, within fifteen (15) days after the end of each calendar quarter, the CUSO will provide ITT ESI with a detailed summary of all of the Loans in such Loan Pool, or, if the First Loss Risk has been exceeded, all of the ITT ESI Risk Loans in such Loan Pool, the aggregate principal balances of Loans in such Loan Pool, or, if the First Loss Risk has been exceeded, the aggregate principal balances of all ITT ESI Risk Loans in such Loan Pool, in each case as of the end of such calendar quarter, and the amount of Collateral that ITT ESI is required to maintain with respect to such Loan Pool based on the formula set forth in Section 6.1 applied to such aggregate balances. Within thirty (30) days after receipt of each summary provided above, ITT ESI will both (i) adjust, upwards or downwards, the amount of Collateral it is required to maintain pursuant to this Article and (ii) send evidence, reasonably satisfactory to the CUSO, of the adjusted amount of such Collateral actually provided.

7

SECTION 6.3 Increase of Collateral in the Event of Default by ITT ESI. In the event ITT ESI shall violate any of the financial covenants or percentages set forth in Section 7.2(b), the Collateralization Percentage applicable to each Loan Pool shall be increased by sixty-six and two-thirds percent (66-2/3%) and ITT ESI shall provide such additional Collateral within thirty (30) days after written demand therefor by the CUSO; provided however that, if the Collateralization Percentage is increased on account of ITT ESI’s violation of any financial covenant or percentage and ITT ESI thereafter becomes in compliance therewith, the Collateralization Percentage for each Loan Pool shall thereafter be restored to its original amount. For example, if the Collateralization Percentage for a Loan Pool would otherwise be 15%, while ITT ESI is in violation of the financial covenants and percentages set forth in Section 7.2(b), the Collateralization Percentage shall be 25%.

ARTICLE VII

REPRESENTATIONS, WARRANTIES AND COVENANTS

SECTION 7.1 Representations and Warranties of Each Party. Each of the parties hereto, severally and not jointly, makes the following representations and warranties to the other party hereto, which representations and warranties shall be deemed to be continuing so long as either party has any obligations under this Agreement:

(a) Existence and Rights. Such party is duly organized, validly existing and in good standing under the laws of its jurisdiction of organization and is duly qualified to transact operations in all places where such qualification is legally required. Such party has the corporate power and authority, rights and franchises to own its property and to carry on its business as now conducted. Such party has the corporate power and authority and legal right to enter into this Agreement and to perform its obligations hereunder.

(b) Agreement Authorized. The making and performance by such party of this Agreement: (i) have been duly authorized by all necessary corporate action; (ii) do not require the consent or approval of any governmental body, regulatory authority, court or official, except such as have already been obtained and are in full force and effect; (iii) do not violate or contravene or constitute a default under any provision of law or regulation or such party’s charter or by-laws or any judgment, injunction, order, or mortgage, security agreement, indenture or other agreement or instrument, to which such party is a party or by which such party or any of its property may be bound or affected; and (iv) will not result in the creation or imposition of any lien or security interest on any property of such party other than as is provided in this Agreement. This Agreement is the legal, valid and binding general obligation of such party enforceable in accordance with its terms, except as may be limited by applicable bankruptcy, insolvency, reorganization or similar laws generally relating to or affecting the enforcement of creditors’ rights or by general principles of equity.

8

(c) Litigation. There is no suit, tax claim or other proceeding pending against or, to the knowledge of such party, threatened against, or affecting such party or any of its property before any court or by or before any governmental authority which, if adversely determined, would materially adversely affect such party’s ability to make and perform this Agreement.

(d) No Event of Default. No Event of Default by such party or other event which, with the giving of notice or lapse of time or both, would become an Event of Default under this Agreement, has occurred and is continuing or will occur by reason of the execution or performance of this Agreement.

SECTION 7.2 Representations, Warranties and Covenants of ITT ESI.

(a) Representations and Warranties. ITT ESI represents and warrants to the CUSO that the financial statements of ITT ESI as of December 31, 2007 and for the fiscal year then ended and as of the quarter ended September 30, 2008 and for the three (3) month period then ended, copies of which have been delivered to the CUSO, fairly present in all material respects, in conformity with GAAP, consistently applied, the financial position of ITT ESI as of such dates and its results of operations and changes in financial position for the periods then ended; provided, however, that it shall not be deemed to be a breach of this representation and warranty if such financial statements are the subject of a subsequent restatement, as long as such restatement is not the result of misconduct. Except as set forth in public filings with the SEC, since September 30, 2008, there has been no material adverse change in the business, financial position, results of operations or prospects of ITT ESI.

(b) Covenants. ITT ESI covenants with the CUSO as follows, which covenants shall continue so long as any ITT ESI Risk Loans shall be outstanding:

(1) Financial Covenants. During the Term of this Agreement, and thereafter, while any ITT ESI Risk Loans remain outstanding, measured at the end of each fiscal quarter based on ITT ESI’s quarterly and year-end financial statements reported in its Forms 10-Q and 10-K, respectively, filed with the SEC, ITT ESI will maintain:

a. Debt Service Ratio. A debt service ratio that is equal to or greater than 1.2 to 1, defined as earnings before interest, income taxes, depreciation and amortization divided by the current portion of long-term debt plus interest expense;

b. Long-term Debt to Equity Ratio. A long-term debt to equity ratio, defined as loans and other liabilities with terms extending over one year divided by the shareholders’ equity of ITT ESI, of equal to or less than 5 to 1;

9

c. Current Ratio. A current ratio, defined as the current assets (assets to be sold or used up in less than one year and any cash or securities pledged as Collateral under this Agreement) divided by the current liabilities (loans or other liabilities with remaining terms of less than one year and the current portion of long-term debt), of ITT ESI, equal to or greater than 1 to 1. This calculation excludes all unsecured and uncollateralized related-party receivables and payables.

For purposes of the foregoing financial covenants, the term “debt” shall not include any securities issued by ITT ESI or a consolidated entity that are convertible into equity securities or a combination of equity securities and cash.

(2) Persistence Percentage. During the Term of this Agreement, and thereafter, while any ITT ESI Risk Loans remain outstanding, measured at the end of each fiscal quarter based on ITT ESI’s quarterly and annual reports filed with the SEC, ITT ESI will maintain an average persistence percentage over the eight fiscal quarters ending on the measurement date of not less than 70%, calculated on a straight average basis.

(3) Compliance Certificate. Within thirty (30) days after the earlier of the date its Form 10-Q or Form 10-K, as the case may be, is filed or required to be filed with the SEC, ITT ESI will furnish to the CUSO a certificate setting forth the status of ITT ESI’s compliance with the financial covenants and persistence percentage set forth in Section 7.2(b) as of the end of such fiscal quarter in the case of a Form 10-Q and fiscal year in the case of a Form 10-K, in each case signed by one of its officers.

(c) Corporate Existence. Except as permitted by Section 8.7(i), during the Term of this Agreement, ITT ESI will not initiate any proceedings or take any action to dissolve or liquidate or to terminate its existence as a corporation or otherwise dispose of all or a substantial part of its assets, either in a single transaction or in a series of related transactions.

ARTICLE VIII

GENERAL PROVISIONS

SECTION 8.1 Confidentiality. Each of the parties shall keep all Confidential Information as confidential and will not, without each other party’s prior written consent, disclose any portion of the Confidential Information to anyone other than to persons who are representatives of such party. No party will (and will cause its representatives not to) use any of the Confidential Information for any purpose other than in connection with its responsibilities under this Agreement and the Program. Each party will inform its representatives of the confidential nature of the Confidential Information and direct each representative to treat the Confidential Information as confidential. Promptly after either party shall gain knowledge of any unauthorized use or disclosure of any Confidential Information, the party gaining such knowledge shall notify the other party of such use or disclosure so that, to the extent then possible, mitigating actions can be taken.

10

SECTION 8.2 Information Excluded From Confidentiality Obligations Set Forth Above. Nothing in this Agreement will be deemed to prevent either party from disclosing any Confidential Information to the extent required by any applicable law, regulation or court order, including, without limitation, applicable securities laws, provided that (i) unless prohibited by law, regulation or court order (including applicable securities or credit union laws), such disclosing party, other than ITT ESI with respect to any information disclosed by ITT ESI under applicable securities laws and regulations, will notify the non-disclosing party of the imminent disclosure as soon as is practicable and in all events with sufficient prior notice to allow the non-disclosing party to seek a protective order or otherwise to object; and (ii) the disclosing party will use commercially reasonable best efforts to minimize or prevent such disclosure to the maximum extent allowed under applicable law, regulation or court order. Confidential Information does not include any such information which: (1) was or becomes generally available to the public other than as a result of a disclosure by the receiving party or its representatives; (2) was within the receiving party’s possession prior to being furnished by or on behalf of the other party; (3) is furnished to the receiving party by a third party who has represented to the receiving party that she/he is not under an obligation of confidentiality to the other party; or (4) is independently developed by the receiving party without the use of any Confidential Information.

SECTION 8.3 Customer Information. Neither party shall disclose to any third party (other than its employees and/or representatives) or use any Customer Information, except solely to carry out the purposes under this Agreement for which such Customer Information was disclosed. Promptly after either party gains knowledge of any unauthorized use or disclosure of any Customer Information, the party gaining such knowledge shall notify the other party of such use or disclosure so that, to the extent then possible, mitigating actions can be taken.

SECTION 8.4 Event of Default and Remedies. If an Event of Default occurs, then, and in every such event, the non-defaulting party may do any one or more of the following (without presentment, protest or notice of protest, all of which are expressly waived by the defaulting party):

(a) terminate this Agreement immediately upon written notice to the other party; and

(b) exercise all other rights legally available to it.

11

As used herein, “Event of Default” shall mean any of the following:

(1) if a party materially fails to perform any of its covenants or agreements herein and such failure, if capable of being cured, continues for 30 days without cure after written notice from the non-defaulting party specifying the nature of such failure (provided however that in no event shall ITT ESI’s breach of any covenant contained in Section 7.2 be deemed an Event of Default hereunder); or

(2) the filing by a party to this Agreement of a petition in bankruptcy or a proposed or actual assignment for the benefit of creditors or a similar proceeding by a party; or

(3) the filing against a party of a petition in bankruptcy or the appointment for a party or any of its assets of a trustee, receiver, executor, liquidator or conservator or other judicial representative or a similar proceeding, which is not vacated, dismissed or stayed on appeal within 60 days; or

(4) if any of a party’s representations or warranties made in this Agreement or in any certificate or writing furnished by one party to another pursuant to this Agreement is false or incorrect in any material respect when made; or

(5) if either party shall breach any Program Document, other than the Management Agreement (after expiration of any applicable cure period provided in such Program Document).

SECTION 8.5 Injunctive Relief for Violation of Confidentiality Provisions. Each of the parties expressly consents and agrees that, notwithstanding anything to the contrary above provided, in the event of an actual or threatened Event of Default by reason of a breach or threatened breach by such party of any of Sections 8.1, 8.2 or 8.3, in addition to any other remedies available to the other party, such other party may obtain injunctive relief in appropriate cases (including a temporary restraining order, preliminary injunction and/or specific performance) to terminate or prevent the continuation of any (or prevent any threatened) such Event of Default without having to show any actual damage and without having to post any bond. It is specifically agreed that a party may incur incalculable and irreparable damage from any violation by the other party of any of said Sections 8.1, 8.2 or 8.3, and that the non-violating party does not have adequate remedy at law for such a violation and such party is entitled to injunctive relief for any such actual or threatened violation.

SECTION 8.6 Amendment; Entire Agreement. This Agreement may only be amended by the express written consent of both of the parties hereto. Together with the Program Documents, this Agreement constitutes the entire agreement between the parties with respect to the Loans and the Program.

12

SECTION 8.7 Assignability. This Agreement may not be assigned or delegated by either party without the written consent of the other party, and any other attempt to delegate or assign any obligations arising under this Agreement will be void. All obligations hereunder are binding on any successors-in-interest of a party. Notwithstanding the foregoing, (i) this Agreement and all rights and obligations hereunder may be assigned by either party to any Person acquiring all or substantially all of such party’s assets and business, whether by sale, merger, consolidation or similar transaction, and (ii) ITT ESI may assign or delegate any of its rights under Sections 3.5 or 3.6 to any direct or indirect subsidiary or Affiliate of ITT ESI.

SECTION 8.8 Governing Law. This Agreement will be construed in accordance with and be governed by the laws of the State of Indiana. Each party submits to personal jurisdiction in the State of Indiana.

SECTION 8.9 Obligations Hereunder Limited; Indemnifications.

(a) The duties and obligations of the parties are limited to those expressly set forth herein and no duty, obligation, undertaking or liability is to be implied or inferred from the context hereof. The obligations under this Agreement of both parties are several and distinct, each party being responsible solely for its own performance pursuant to this Agreement.

(b) Each party agrees to indemnify and hold harmless the other party, its directors, officers and employees and their respective successors and assigns from and against any and all Losses that result from or are attributable to any breach by the indemnifying party of its representations, warranties, covenants and obligations as set forth in this Agreement.

Section 8.10 Counterparts. This Agreement may be simultaneously executed in one or more counterparts, each of which will be an original and both of which will constitute but one and the same instrument.

SECTION 8.11 Notices. Notices, requests, demands or other instruments that may be or are required or permitted to be given to either party hereto must be in writing and shall be deemed to have been properly given and effective when:

(a) Delivered personally to an officer of the party to which such notice is to be given; or

(b) Actually received by a party when mailed by registered or certified mail or delivered by an overnight delivery service that requires a signature upon receipt; or

(c) Sent by electronic mail or facsimile if delivery is confirmed and a copy is mailed to the recipient as set forth above.

All such notices will be addressed as set forth on the signature page hereto. Either party may change the address to which notices to such party are to be sent by notice to the other party given as aforesaid.

13

SECTION 8.12 Binding Effect. Subject to the limitations on assignment set forth herein, all covenants and agreements herein contained and all provisions hereof will extend to, be binding upon, and inure to the benefit of the permitted successors and assigns of the respective parties.

SECTION 8.13 Survival. All representations and warranties, the parties’ obligations regarding Loans disbursed prior to termination of this Agreement, and the indemnifications and confidentiality provisions of this Agreement, will survive the termination of this Agreement.

SECTION 8.14 Set Off. Upon notice to the other party specifying in reasonable detail the basis therefor, any party may set off any amount to which it is entitled from the other party against any amount that it is obligated to pay to the other party. The exercise of such right of set off in good faith, whether or not ultimately determined to be justified, shall not constitute an Event of Default under this Agreement or any Program Document. Neither exercise nor failure to exercise any right of set off will constitute any election of remedies or limit either party in any manner in the enforcement of any other remedies that may be available to it.

14

IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by their respective officers thereunto duly authorized as of the Effective Date.

ITT Educational Services, Inc.
By:	/s/ Kevin M. Modany
	Name: Kevin M. Modany Title: Chairman and CEO Date: 2-20-09 Address: Chief Financial Officer ITT Educational Services, Inc. 13000 North Meridian Street Carmel, IN 46032-1404 Email: dfitzpatrick@ittesi.com Fax: (317) 706-9254

Student CU Connect CUSO, LLC
By:	/s/ Tony Ferris
	Name: Tony Ferris Title: Partner, Rochdale Date: 2-20-09 Address: 8700 Indian Creek Parkway, Suite 120 Overland Park, Kansas 66210 Attention: Tony Ferris Email: tferris@rochdalegroup.com Fax: (913) 322-3770

15

SCHEDULE A

TO

RISK SHARING AGREEMENT

16

SCHEDULE A

DEFINITIONS

A. Definitions. The following terms shall have the following respective meanings:

“2010 Funding Year Target” means the sum of (i) the Base Funding Year Target plus (ii) the amount (if any) by which the Base Funding Year Target exceeded the aggregate dollar amount of funds deposited in the Loan Funding Account by the CUSO (excluding any amounts deposited in respect of refunds of Loans) in Funding Year 2009.

“2011 Funding Year Target” means the sum of (i) the Base Funding Year Target plus (ii) the amount (if any) by which the 2010 Funding Year Target exceeded the actual dollar amount of funds deposited in the Loan Funding Account by the CUSO (excluding any amounts deposited in respect of refunds of Loans) in Funding Year 2010.

“Actual Funding Commitment” means the amount deposited by the CUSO into the Loan Funding Account with respect to any Funding Period in order to meet actual Loan demand.

“Actual Participation Commitment” means, with respect to each Subscriber, the amount obtained by multiplying such Subscriber’s Participation Commitment Percentage by the estimated Loan volume for a given Funding Period, less the Subscriber’s share (based on Participation Commitment Percentage) of any previously unutilized amounts and any amounts permitted to be retained from refunds.

“Actual Renewal Participation Commitment” means, with respect to a Subscriber, a revised Estimated Aggregate Participation Commitment (as defined in the applicable Subscription Agreement) for a Renewal Term based on estimated Loan volume.

“Administrative Fee” has the meaning set forth in the Participation Agreement.

“Affiliate” means, with respect to any Person, any other Person controlling or controlled by or under common control with such Person. For purposes of this definition, “control” when used with respect to any specified Person means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise, and the terms “controlling” and “controlled” have meanings correlative to the foregoing.

“Annual Commitment” means, with respect to each Participant, the portion of the Estimated Aggregate Participation Commitment (as defined in the applicable Subscription Agreement) payable in a Funding Year covered by the Participation Agreement.

“Automatic Renewal” means the automatic renewal of a Subscriber’s obligations under the applicable Subscription Agreement for one or more successive Renewal Terms.

“Available Funded Commitment” has the meaning set forth in the Participation Agreement.

A-1

“Available Participation Interest” has the meaning set forth in the Participation Agreement.

“Base Funding Year Target” means one-third of the Estimated Aggregate Funding Commitment for Funding Years 2009, 2010 and 2011.

“Borrower” means a Student, or any guarantor or co-signer of a Student, obligated under each Loan.

“Business Day” means a day other than Saturday, Sunday, a United States national holiday or other day on which banks in the State of Indiana are permitted or required by law to close.

“Charged Off” means a Loan on which there have not been any payments made for at least 180 days, if any payments had been due during such period.

“Claim Package” means, with respect to each ITT ESI Risk Loan (if any) in a Loan Pool: (a) Loan-level information, including, without limitation, both a servicing and a payment transaction history, for that ITT ESI Risk Loan; and (b) an invoice summarizing the Loan-level remittance data for such ITT ESI Risk Loan, including loan number, name, social security number, disbursement date, outstanding loan amount, outstanding accrued interest, interest rate, aggregate monthly payment(s) amount past due, and, if requested by ITT ESI, the ten (10) day pay-off amount for such ITT ESI Risk Loan.

“Collateral” has the meaning set forth in the Security Agreement.

“Collateralization Percentage” means, with respect to the Loan Pool for Funding Year 2009, fifteen percent (15%), and, with respect to each Loan Pool other than that for Funding Year 2009, ten percent (10%), in each case, unless adjusted as provided in Section 6.3 of the Risk Sharing Agreement.

“Collection and Charge Off Standards” mean the Loan servicing criteria mutually approved by the parties to the Program Agreement.

“Commitment Account” means the account maintained by the CUSO into which Participants will deposit funds in respect of Participation Commitments and from which the CUSO will withdraw funds to deposit into the Loan Funding Account for the purchase of Loans. The funds in the Commitment Account shall not be commingled with any other funds of the CUSO.

“Commitment Share” means, with respect to each Participant in relation to each Loan Pool and for any date of determination, a fraction (expressed as a percentage), (i) the numerator of which equals the amount of the Available Funded Commitment then funded by such Participant for such Loan Pool, and (ii) the denominator of which equals the aggregate Available Funded Commitment.

“Commitments” has the meaning set forth in the Participation Agreement.

A-2

“Confidential Information” means (a) information disclosed to a party with respect to any Program Document; (b) all information related to the structure of and the terms of any Program Document, including items set forth in the Exhibits thereto; and (c) all information related to the other parties’ operations, finances, Borrowers, customers, and Students, and any analyses, concepts, ideas, compilations, studies, materials, memoranda, notes and data pertaining thereto and/or derived from the any Program Document or the Program.

“Credit Facility” means any debt financing obtained by the CUSO from ITT ESI or other lender(s) to fund the CUSO’s operation of the Program and the Retained CUSO Interest, if any, in the Loans in each Loan Pool.

“Credit Facility Documents” means any loan agreement, security agreement, promissory note, borrowing base certificate, and other documents entered into by the CUSO in connection with a Credit Facility, as amended, modified, restated or replaced from time to time.

“Credit Lender” means the financial institution(s) or other Person(s) providing the Credit Facility to the CUSO.

“Credit Unions” means, collectively, the network of participating credit unions in the Program, which includes the Originating Entity.

“CUSO” means Student CU Connect CUSO, LLC, a Delaware limited liability company operating as a credit union service organization.

“Customer Information” means non-public consumer information that is disclosed to a party by another party or any Credit Union.

“Cut-off Date” means the date that is five (5) Business Days prior to any Payment Date.

“Default” means, with respect to any Loan, any event that constitutes or, with the giving of notice or passage of time or both, would constitute a default or an event of default under the related Loan Documents.

“Deposit Account Control Agreement” means a Deposit Account Control Agreement among ITT ESI, the CUSO and a Designated Financial Institution substantially in the form of Exhibit 1.1(b) to the Security Agreement.

“Designated Financial Institution” means a financial institution selected by ITT ESI and meeting the criteria set forth in Exhibit A-1 hereto.

“Disassociated Participant” has the meaning set forth in the Participation Agreement.

“Distribution Account” means the segregated account maintained by the CUSO in which Monthly Collections will be deposited and from which the CUSO will withdraw funds to make distributions to itself and the Participants as set forth in Sections 7(a)-(b) of the Participation Agreement.

“Effective Date” means February 20, 2009.

A-3

“Estimated Aggregate Funding Commitment” means an amount equal to the sum of all Estimated Aggregate Participation Commitments. When words such as “for that Funding Year” and “for that Funding Period” are used after the term “Estimated Aggregate Funding Commitment” in any Program Document, it means the maximum portion of the Estimated Aggregate Funding Commitment that is payable in the applicable Funding Year or Funding Period, respectively, as determined in accordance with Section 2.9(c) and Section 2.9(d), respectively, of the Program Agreement.

“Exit Transaction” has the meaning set forth in the Participation Agreement.

“First Disbursement Date” means, with respect to each Funding Period, the date of the first Loan disbursement by the Originating Entity to ITT ESI in such Funding Period, as mutually determined by ITT ESI and the CUSO.

“First Loss Percentage” means thirty-five percent (35%) or such other percentage as ITT ESI and the CUSO shall mutually agree upon as provided in Section 5.1 of the Risk Sharing Agreement.

“First Loss Risk” means, with respect to any Loan Pool, the product produced by multiplying (x) the applicable First Loss Percentage times (y) the aggregate Net Disbursements on all Loans in such Loan Pool.

“Funding Periods” means periods during a Funding Year determined from time to time by ITT ESI.

“Funding Year” means the calendar year in which a Loan is disbursed. For clarification, Funding Year 2009 is the period commencing on the Effective Date and terminating on December 31, 2009, and Funding Years 2010 and 2011 are the related calendar years.

“GAAP” means generally accepted accounting principles in the United States, or such other accounting principles as prescribed for public companies from time to time.

“Initial Capital Contribution” means a Credit Union’s initial Capital Contribution (as defined in the Operating Agreement) in exchange for its Membership Interest.

“Initial Term” means the period from the Effective Date until December 31, 2011.

“ITT ESI” means ITT Educational Services, Inc., a Delaware corporation.

“ITT ESI Risk Loans” means, collectively, all Loans (representing all unpaid (i) Net Disbursements and (ii) accrued interest) in a Loan Pool in excess of the First Loss Risk for such Loan Pool.

“ITT ESI Risk Payment” means, as to a Loan Pool, once the First Loss Risk for such Loan Pool has been exceeded, payments due and unpaid as of the end of the applicable month on all Charged Off ITT ESI Risk Loans in such Loan Pool that are not Charged Off First Loss Risk Loans.

A-4

“Letter of Credit” means an irrevocable standby letter of credit, securing payment of all or a portion of the Obligations (as defined in the Security Agreement) with respect to a Loan Pool, issued by a Designated Financial Institution.

“Lien” means any statutory or common law consensual or non-consensual mortgage, pledge, security interest, participation interest, encumbrance, lien, right of setoff, claim or charge of any kind, including, without limitation, any conditional sale or other title retention transaction, and any secured transaction under the Uniform Commercial Code of any applicable jurisdiction.

“Loan Criteria” means the criteria of the Originating Entity, of which Exhibit A-2 hereto is a copy, which may not be amended or supplemented without the prior written approval of ITT ESI and the CUSO.

“Loan Documents” means, with respect to each Loan, the loan application, loan agreement, promissory note, co-signer documentation (if applicable), and other documents executed and delivered by a Borrower, as amended, modified, restated or replaced from time to time.

“Loan File” means the credit report, underwriting analysis, loan approval, confirmation of credit union membership, Loan Documents, payment history, and all other documentation of the Originating Entity or the CUSO with respect to any Loan.

“Loan Funding Account” means the account designated by the Originating Entity into which the CUSO will deposit the Purchase Price for Loans to be disbursed in each Funding Period and from which the Originating Entity will disburse the Loan proceeds to ITT ESI.

“Loan Pool” means all Loans disbursed during a Funding Year.

“Loan Pool Collateral” means as to each Loan Pool, the Collateral therefor to be determined, established and adjusted pursuant to Article VI of the Risk Sharing Agreement.

“Loan Proceeds” means, with respect to each Loan, all payments of principal, interest, loan fees, late fees, and other amounts received by the CUSO or the Servicer(s) in connection with such Loan.

“Loans” means loans to Students originated by the Originating Entity in accordance with the Loan Criteria pursuant to the Purchase Agreement.

“Losses” means, with respect to any indemnity or limitation of liability in any Program Document, losses, costs, claims, damages, demands, expenses, liabilities, causes of action, investigation expenses, attorneys’ fees and expenses and amounts paid in settlement; provided, however, that no settlement shall be made without the written consent of the party suffering the Loss, unless such settlement provides a full release of such party without the payment of any funds by such party. “Losses” excludes, however, incidental, consequential, indirect, punitive or special damages.

A-5

“Management Agreement” means the Management Services Agreement, dated as of the Effective Date, between the Program Administrator and the CUSO, as amended, modified, restated or replaced from time to time.

“Mature Loans” means Charged Off Loans on which an amount equal to at least ten (10) monthly payments have been made, whether by the Borrower, ITT ESI under Section 3.4 of the Risk Sharing Agreement, or otherwise.

“Membership Interest” means a Credit Union’s membership interest in the CUSO under the Operating Agreement and such Credit Union’s Subscription Agreement.

“Monthly Collections” has the meaning set forth in the Participation Agreement.

“Monthly Report” means a written report concerning a Loan Pool, as of the end of the month that is the subject of such Monthly Report, containing the following information: (i) the aggregate Net Disbursements on all Loans originally in the applicable Loan Pool; (ii) the amount of the First Loss Risk for such Loan Pool; (iii) the aggregate current principal balances of all Loans in such Loan Pool; (iv) the aggregate amount that has been Charged Off on all Loans in such Loan Pool; (v) the aggregate current principal balances of all Loans in such Loan Pool, if any, that are the subject of the First Loss Risk for such Loan Pool and have not yet been subjected to Charge Off; (vi) the aggregate amount of the current principal balances of all ITT ESI Risk Loans in such Loan Pool; (vii) if the First Loss Risk has been exceeded, the aggregate ITT ESI Risk Payment; (viii) the aggregate current outstanding balance plus accrued unpaid interest of each Mature Loan reported pursuant to clause (vii) hereof; and (ix) the aggregate amount of all payments received during such month in respect of all Charged Off Loans.

“NCUA” means the National Credit Union Administration or any successor federal credit union regulatory agency.

“NCUA Rules” means the rules and regulations of the NCUA.

“Net Disbursement” means, as to any Loan, the total original sum disbursed to ITT ESI as payment of tuition and other charges, plus all origination and other loan fees, net of any refund or return thereof paid by ITT ESI within sixty (60) days after the disbursement date thereof. The amount of the Net Disbursement on a Loan shall not be reduced for any principal payments made on such Loan, whether by the Borrower, ITT ESI or otherwise (excepting only refunds as aforesaid), or increased for any capitalized interest charges.

“Offer Price” has the meaning set forth in the Participation Agreement.

“Operating Agreement” means the Operating Agreement of the CUSO, as amended, modified, restated or replaced from time to time.

“Originating Entity” means the federal credit union that will originate Loans, sell such Loans to the CUSO, and maintain a Retained Originator Interest in the Loans in each Loan Pool not less than that percentage from time to time required by NCUA Rules or other applicable law.

A-6

“Originating Entity Default” shall be deemed to exist if (i) the Originating Entity withdraws from the Program or is expelled from the CUSO; (ii) the Originating Entity fails for any reason to originate any Loan which complies with the Loan Criteria and does not cure such failure within fifteen (15) days after receipt of written notice from the CUSO; (iii) an Event of Default by the Originating Entity exists under the Purchase Agreement; (iv) the Originating Entity ceases doing business or becomes insolvent, or the NCUA becomes liquidator of the assets of the Originating Entity in the event of insolvency; (v) the Originating Entity is no longer able to serve as Originating Entity or originate Loans under the Program; (vi) the Originating Entity becomes a Disassociated Participant; or (vii) the Originating Entity fails at any time to fund or maintain the Retained Originator Interest.

“Origination Agreement” means any agreement entered into between the Originating Entity and the Origination Vendor, with the prior approval of ITT ESI, in connection with which the Originating Entity will engage the Origination Vendor to perform origination and documentation servicing for the Loans.

“Origination Vendor” means any Person performing Loan origination and documentation servicing under the Origination Agreement.

“Participant Schedule” has the meaning set forth in the Participation Agreement.

“Participants” mean the Credit Unions that acquire Participation Interests in the Loans in any Loan Pool, including without limitation the Originating Entity.

“Participation Agreement” means the Participation Agreement entered into between the CUSO and the Participants, as amended, modified, restated or replaced from time to time.

“Participation Commitment Percentage” means, with respect to a Participant, the percentage such Participant’s Estimated Aggregate Participation Commitment bears to the total of all Participants’ Estimated Aggregate Participation Commitments.

“Participation Commitments” means collectively, a Subscriber’s Estimated Aggregate Participation Commitment (as defined in the applicable Subscription Agreement) and Actual Participation Commitments.

“Participation Interest” means, with respect to each Participant, its beneficial ownership interest in each Loan and the related Loan Documents, including such Participant’s right to receive its share of Loan Proceeds on each Payment Date.

“Participation Pledgee” has the meaning set forth in the Participation Agreement.

“Participation Purchase Notice” has the meaning set forth in the Participation Agreement.

“Payment Date” means the 25th day of each month or, if such day is not a Business Day, the following Business Day.

A-7

“Percentage Interest” means, with respect to a Member (as defined in the Operating Agreement), the percentage such Member’s Membership Interest bears to the total outstanding Membership Interests.

“Permitted Liens” means (a) Liens of the CUSO, (b) Liens for taxes not delinquent or for taxes being diligently contested in good faith by ITT ESI by appropriate proceedings, (c) Liens arising in the ordinary course of business with respect to obligations which are not due or which are being diligently contested in good faith by ITT ESI by appropriate proceedings, provided such Liens do not, in the aggregate, materially detract from the value of the Collateral, and (d) Liens specifically consented to in writing by the CUSO.

“Person” shall mean any natural person, corporation, association, limited liability company, syndicate, partnership, joint venture, trust, government or agency and department thereof, or any other entity of every kind.

“Pledge” has the meaning set forth in the Participation Agreement.

“Pledging Participant” has the meaning set forth in the Participation Agreement.

“Pro Rata Share” means, with respect to each Participant and the CUSO in relation to each Loan Pool and for any date of determination, a fraction (expressed as a percentage), (i) the numerator of which equals the aggregate principal balance of its Participation Interests or Retained CUSO Interest, as the case may be, in the Loans in such Loan Pool, and (ii) the denominator of which equals the aggregate principal balance of all Participation Interests and the Retained CUSO Interest in the Loans in such Loan Pool.

“Program” means the national financing program established by the CUSO to provide private student loans to Students in accordance with the Program Agreement.

“Program Administrator” means the Person designated from time to time as the “Program Administrator” under the Program Agreement. The initial Program Administrator is TRG.

“Program Agreement” means the Financing Program Agreement, dated as of the Effective Date, between ITT ESI and the CUSO, as amended, modified, restated or replaced from time to time.

“Program Documents” means the Program Agreement, the Participation Agreement, the Subscription Agreements, the Purchase Agreement, the Servicing Agreement(s), the Origination Agreement, the Risk Sharing Agreement, the Security Agreement, the Operating Agreement, the Management Agreement, the Credit Facility Documents (if ITT ESI is Credit Lender), and any other documents or instruments entered into in connection with the Program, and any amendment, modification, restatement or replacement thereof.

“Projected Renewal Participation Commitment” means, with respect to a Subscriber, the sum of the Participation Commitments paid by or credited to such Subscriber for the four (4) Funding Periods immediately preceding a Renewal Term.

A-8

“Purchase Agreement” means the Loan Purchase and Sale Agreement, dated as of the Effective Date, entered into by the Originating Entity and the CUSO, as amended, supplemented, modified, restated or replaced from time to time.

“Purchase Option Price” has the meaning set forth in the Participation Agreement.

“Purchase Price” means the principal amount of a Loan purchased by the CUSO, excluding origination fees and expenses.

“Quarterly Report” has the meaning set forth in the Participation Agreement.

“Redirection Notice” has the meaning set forth in the Participation Agreement.

“Renewal Term” means any one (1) year period after the Initial Term in which a Program Document is renewed.

“representatives” means, with respect to a party to the applicable Program Document, employees of such party and such party’s agents, representatives and advisors, including without limitation, attorneys, accountants, and financial advisors.

“Required Information” means each Claim Package and related Monthly Report.

“Retained CUSO Interest” means, with respect to each Loan in a Loan Pool, at any time, the portion thereof that is not then subject to either the Retained Originator Interest or Participation Interests held by Participants.

“Retained Originator Interest” means, with respect to each Loan in a Loan Pool, the Originating Entity’s 10% Participation Interest in such Loan. Any interest of the Participants (including the Originating Entity) in any such Loan exceeding the 10% Retained Originator Interest is a regular Participation Interest therein.

“Risk Sharing Agreement” means the Risk Sharing Agreement, dated as of the Effective Date, between ITT ESI and the CUSO, as amended, supplemented, modified, restated or replaced from time to time.

“SEC” means the United States Securities and Exchange Commission.

“Securities Account Control Agreement” means an agreement among ITT ESI, the CUSO and a securities intermediary substantially in the form of Exhibit 1.1(f) of the Security Agreement.

“Security Agreement” means the Security Agreement, dated as of the Effective Date, by ITT ESI in favor of the CUSO.

“Security Documents” means the Security Agreement and any and all other security agreements, assignments, subordination agreements, pledge or hypothecation agreements, instruments, letters of credit, letter-of-credit agreements and documents that are (i) now and/or hereafter existing between the CUSO and ITT ESI, and (ii) that secure any of the Obligations (as defined in the Security Agreement).

A-9

“Servicer” means the Person obligated pursuant to the Servicing Agreement to, among other things, collect, monitor and report Loan payments, handle late payments and other delinquencies, and remit payments.

“Servicing Agreement” means the Servicing Agreement dated as of the Effective Date between the CUSO and the Servicer, as amended, supplemented, modified, or replaced from time to time.

“Servicing Fee” means all fees payable to Servicer or Origination Vendor for performing their respective obligations under the Servicing Agreement or the Origination Agreement.

“Student” means a student enrolled at one of ITT ESI’s ITT Technical Institutes.

“Subscriber” means each Credit Union that is a party to a Subscription Agreement.

“Subscriber 2010 Funding Year Target” means, with respect to each Subscriber, the sum of the Subscriber Base Funding Year Target plus the amount (if any) by which the Subscriber Base Funding Year Target exceeded the actual amount that was paid by such Subscriber in Funding Year 2009.

“Subscriber Base Funding Year Target” means, with respect to each Subscriber, one-third of such Subscriber’s Estimated Aggregate Participation Commitment (as defined in the applicable Subscription Agreement) for Funding Years 2009, 2010 and 2011.

“Subscriber Contact” means, with respect to each Subscriber, such Subscriber’s authorized representative designated in such Subscriber’s Subscription Agreement.

“Subscriber Shortfall” means, with respect to a Subscriber, that the payment of the entire Actual Participation Commitment by such Subscriber for any Funding Period would exceed twenty-five percent (25%) of the maximum portion of the Estimated Aggregate Participation Commitment for the applicable Funding Year.

“Subscriber Shortfall Period” means a Funding Period in which a Subscriber Shortfall occurs or is to occur.

“Subscription Agreement” means each Subscription and Commitment Agreement between the CUSO and a Participant with respect to the Program, as amended, modified, restated or replaced from time to time.

“Substitute Member” has the meaning set forth in the Operating Agreement.

“Substitute Originating Entity means a substitute federal credit union or group of federal credit unions, in either case acceptable to ITT ESI, designated by the CUSO to serve as the Originating Entity.

A-10

“Substitute Purchase Agreement” means a purchase agreement with a Substitute Originating Entity on the same or substantially similar terms as the Purchase Agreement or otherwise approved by the Substitute Originating Entity, the CUSO, and ITT ESI.

“Term” means the Initial Term and any Renewal Term(s).

“TRG” means The Rochdale Group, Inc., a Kansas corporation.

B. Certain Definitions to be Disregarded. Terms defined in this Schedule and not used or capitalized in the Agreement to which this Schedule is attached shall be disregarded for all purposes in connection with such Agreement (except and to the extent such terms are used in another Program Document referred to in the Agreement to which this Schedule is attached).

A-11

EXHIBIT A-1

Designated Financial Institutions

A Designated Financial Institution shall at all times be a banking corporation or national banking association organized and doing business under the laws of the United States of America or any state thereof or of the District of Columbia and authorized under such laws to exercise corporate trust powers, having a combined capital and surplus of at least Ten Billion U.S. dollars ($10,000,000,000) and subject to supervision or examination by federal, state, or District of Columbia authority. If such corporation or national banking association publishes reports of condition at least annually, pursuant to law or to the requirements of the aforesaid supervising or examining authority, then for the purposes hereof, the combined capital and surplus of such corporation or national banking association shall be deemed to be its combined capital and surplus as set forth in its most recent records of condition so published.

ITT ESI may not, nor may any entity directly or indirectly controlling, controlled by, or under common control with ITT ESI, be a Designated Financial Institution, notwithstanding that such corporation or national banking association shall be otherwise eligible and qualified hereunder.

EXHIBIT A-2

Loan Criteria

Student CU Connect Private Student Loan Program Criteria

Program Borrowing Limits

The minimum and maximum amounts that may be borrowed under this Loan Program on a per borrower basis are as follows:

Minimum Loan Amount:	$1,000 (or any other higher minimum loan amount as applicable by state law)
Annual Maximum Loan Limit:	Cost of Education less other financial aid
Aggregate Private Student Loan Program Limits:	Associate degree programs:	$35,000
	Bachelors degree programs:	$60,000
	*Resulting in maximum undergraduate
	(Associate and Bachelors combined):	$60,000
	Graduate degree programs:	$25,000
	*Resulting in maximum total of all combined:	$85,000

Repayment Terms

The minimum monthly principal and interest payment amount will be $50.00 per account per month.

1) Repayment Plans

While a student is enrolled at an ITT Technical Institute, repayment of principal and interest will be deferred until the circumstances described in the “Repayment Begins” section below occur. During the deferral period the borrower will be sent quarterly statements providing him or her the opportunity to make interest payments. During the deferral period, the borrower can also make principal payments at any time without penalty.

2) Repayment Begins

Repayment of principal and interest on each loan will begin six (6) months after the student graduates, unless the student enrolls in another program at ITT Technical Institute and begins taking courses. For students who do not maintain at least four (4) credit hours in a given quarter for any reason other than graduation, repayment of principal and interest will begin three (3) months after their last clay of attendance unless the student re-enrolls in an ITT Technical Institute and begins to take at least four (4) credit hours.

Repayment of principal and interest on each loan will begin, if not already begun pursuant to the terms of the preceding paragraph, on the first day following the seventh (7th) year anniversary of the date of the first disbursement on the loan.

3) Repayment Duration

The term of each loan will be ten (10) years from the date the repayment period begins.

4) Prepayment

The borrower may prepay all or a portion of the loan at any time without penalty.

Student CU Connect Private Student Loan Program Criteria

5) Late Charges

Borrowers will be assessed a late charge if they fail to make any part of an installment payment within 15 days after it becomes due. The late charge fee will be the lesser of $10.00 or 5% of the installment.

Program Eligibility and Credit Requirements

1) Eligible Borrower

The borrower must satisfy all of (a)-( d) below:

a) Be admitted to, or have graduated from, an ITT Technical Institute undergraduate or graduate program of study.

b) Be a U.S. Citizen or National, or a Permanent Resident.

AND

If there is a Co-signer, the Co-signer must be a U.S. Citizen or National, or a Permanent Resident.

c) Meet all credit requirements specified below in Section 3.

OR

Have a credit-worthy co-signer who meets all credit requirements specified below in Section 3.

d) Be the age of majority, as determined by individual state requirements for the primary borrower’s permanent residence, at the time of the loan application.

2) Eligible Loan Periods

Current and Future

Borrowers can apply for a loan relating to an academic year that begins within twelve (12) months after the loan application date. The first disbursement for a subsequent academic year must also occur within twelve (12) months after the loan application date.

Past Enrollment

Borrowers may borrow funds for previous academic periods during which they were enrolled as long as such borrower has either graduated or is enrolled in an ITT Technical Institute on the loan application date.

3) Credit Requirements

To qualify for a loan, an eligible borrower must satisfy all of the following credit requirements:

a) No filed bankruptcy, discharged bankruptcy or foreclosure within the twenty-four (24) months immediately preceding the loan application date.

b) No judgments, charge offs, collections, liens, or repossessions in an aggregate amount of more than five hundred dollars ($500) within the twenty-four (24) months immediately preceding the loan application date.

c) No mortgage, student loans, or other installment loans that are currently 90 days or more past due. d) No record of a student loan default, unless the default has been paid in full.

e) Less than three (3) derogatory credit indications on the borrower’s credit report. A derogatory credit indication is defined as a balance of at least five hundred dollars ($500) that is past due at least ninety (90) days.

f) A borrower who fails to qualify on his or her own for a loan may be eligible with an eligible co-signer who satisfies all of the credit requirements and who has a credit score of at least 680.

Student CU Connect Private Student Loan Program Criteria

At such time, if any, that the origination vendor of the loans can support it in an automated format, the foregoing (a) and (d) credit requirements will be modified to read instead as follows:

a) No filed bankruptcy, discharged bankruptcy or foreclosure within the twenty-four (24) months immediately preceding the loan application date unless the borrower has agreed to payment arrangements and made prompt payments for at least the last consecutive 18 months.

d) No record of a student loan default, unless the default has been paid in full, or the borrower is making satisfactory progress in repaying the loan. Satisfactory progress is defined as: at least twelve (12) consecutive payments made: account is current: repayment history has no gaps: and the IRS Tax Offset Program was not used to pay default.

Notwithstanding the foregoing, a borrower who is otherwise eligible under all of the other provisions of these loan criteria does not need to satisfy all of the foregoing (a) through (f) credit requirements to qualify for a loan if .such borrower: (i) received the open account credit provided by ITT Technical Institute (known as its “Temporary Credit” program); (ii) has graduated or is enrolled in any academic quarter other than the first academic quarter of such borrower’s first academic year on the loan application date; and (iii) has not declared bankruptcy within the twenty-four (24) months immediately preceding the loan application elate.

4) Credit Score

The eligible borrower’s FICO Score will determine the interest rate and fee charged on the loan as follows:

Tier	FICO Score	Interest Rate Range	Origination Fee*
1	790+	Prime +0.5%	N/A
2	720-789	Prime +1.5%	2%
3	680-719	Prime +4.0%	3%
4	650-679	Prime +6.0%	5%
5	600-649	Prime +7.0%	7%
6	No credit score	Prime +8.0%	8%
7	599 and below	Prime +10.5%	10%

* Origination fee calculated as a percent of loan amount

Eligible borrowers with an Experian-Fair Isaac Score Code of 9002 or 9003 will be priced as if part of Tier 6 (“No Credit Score”).

The origination fee will be credited in full to the borrower if an entire disbursement is refunded within 60 days of the disbursement date.

Notwithstanding the rates and fees set forth in the table above, the annual percentage rate, including the capitalized origination fee, on any loan will not exceed eighteen percent (18%) over the term of the loan, or such other limit under applicable law that may be in effect from time to time.

5) Deferment

a) In School

Principal and interest payments on a Joan may be deferred by the borrower during the period that the student is enrolled in an undergraduate or graduate program at an ITT Technical Institute and is taking at least four (4) credit hours. Upon graduation, the student may defer payment of the Joan principal and interest for an additional six (6) months (“grace period”). If the student enrolls in another program at an ITT Technical Institute and begins taking courses before or after the end of such six (6) months, the deferral will continue or begin again, as applicable, until such time as repayment is to begin under the terms of these loan criteria. Students whose enrollment terminates prior to graduation, or who are taking less than four (4) credit hours, will have a three (3) month grace period before principal and interest payments begin.

Student CU Connect Private Student Loan Program Criteria

If the student re-enrolls in an ITT Technical Institute and begins to take at least four (4) credit hours before or after the end of such three (3) month period, the deferral will continue or begin again, as applicable, until such time as repayment is to begin under the terms of these loan criteria. Borrowers will receive quarterly statements while enrolled.

b) Military

A military deferment will be available for a period during which a borrower is serving on active duty during a war or other military operation or national emergency, or performing qualifying National Guard duty during a war or other military operation or national emergency (“Qualifying Duty’’). A borrower who is a member of the National Guard or other reserve component of the U. S. Armed Forces (current or retired) and who begins serving Qualifying Duty while enrolled at ITT Technical Institute, or within six (6) months after having been enrolled, is eligible to defer paying any principal or interest on a loan during the Qualifying Duty service and during the 13 months following the conclusion of the Qualifying Duty service, or until the date that the borrower returns to an enrolled student status at ITT Technical Institute, whichever is earlier.

6) Forbearance

A borrower may request a forbearance of the payment of principal and interest on a loan, which Student CU Connect CUSO will grant in its sole discretion. Any single forbearance in the payment of a loan may not exceed three (3) months, and all forbearances granted with respect to a loan may not, in aggregate, exceed twelve (12) months over the life of the loan. If the borrower is delinquent at the time a forbearance is granted, all past due interest on the loan will be capitalized.

7) Interest Rate

Interest will accrue at a variable rate, beginning on the date that any portion of the loan is disbursed, on the outstanding principal balance, including any capitalized interest and origination fees. The variable rate may change monthly on the first day of each month based on the Prime Rate as of the third to last business day of the immediately preceding month. The Prime Rate is defined as the highest U.S. Prime Rate published in The Wall Street Journal “Money Rates’’ section.

The applicable interest rate will be rounded to the nearest one-eighth of one percent (0.125%). In the event of a change in the Prime Rate, monthly payments will be calculated based on the then current principal balance, the remaining term of the loan, and the then current interest rate, based on a 365.25-day calendar year and will not vary in leap years.

Notwithstanding any other provisions herein, at no time will the applicable interest rate, inclusive of the capitalized origination fee, be such that the annual percentage rate on any loan exceeds eighteen percent (18%) or such other limit under applicable law as in effect from time to time.

8) Co-Signer Eligibility

To be eligible to co-sign a loan, a co-signer must have a FICO score of at least 680 and satisfy other criteria specified above in Sections 1 (other than 1(a)) and 3. Loans with an eligible co-signer will be charged interest and fees at the Tier 4 level in Section 4 above.

9) Default & Charge-Off

A loan will be in reportable default if any principal or interest payment under the loan is sixty (60) days past due.

A loan will be charged off if payments under the loan are due and not received for a period of one hundred and eighty (180) days.

EXHIBIT 6.1

SECURITY AGREEMENT

THIS SECURITY AGREEMENT (with all amendments, modifications and supplements hereto, collectively this “Agreement”) dated as of February 20, 2009, by ITT EDUCATIONAL SERVICES, INC., a Delaware corporation (“ITT ESI”) in favor of STUDENT CU CONNECT CUSO, LLC, a Delaware limited liability company operating as a credit union service organization (the “CUSO”).

RECITALS

The following are a material part of this Agreement:

A. ITT ESI and the CUSO are parties to the Risk Sharing Agreement.

B. Pursuant to the Risk Sharing Agreement, ITT ESI has agreed to provide a guarantee for Loans upon and subject to the terms and conditions of the Risk Sharing Agreement.

C. One of the terms and conditions of the Risk Sharing Agreement is that, so long as any ITT ESI Risk Loan remains outstanding, ITT ESI shall secure its obligations under Article III of the Risk Sharing Agreement with respect to each Loan Pool containing such Loans by pledging, as provided herein, collateral in the form of cash, government or agency securities and/or one or more letters of credit.

NOW, THEREFORE, in consideration of the mutual covenants contained herein, ITT ESI and the CUSO do hereby agree as follows:

ARTICLE I

CONSTRUCTION AND DEFINITION OF TERMS

SECTION 1.1 Terms used in this Agreement and not otherwise specifically defined herein shall have the respective meanings provided in Schedule A (which is attached to and made a part of this Agreement). All terms used without definition herein and which are defined by the Indiana Uniform Commercial Code shall have the meanings assigned to them by the Indiana Uniform Commercial Code, as in effect on the date hereof, unless and to the extent varied by this Agreement. Whenever the phrase “satisfactory to the CUSO” is used in this Agreement such phrase shall mean “satisfactory to the CUSO in its reasonable discretion.” The use of any gender or the neuter herein shall also refer to the other gender or the neuter and the use of the plural shall also refer to the singular, and vice versa. In addition, unless the context otherwise requires, when used herein, the following terms shall have the following meanings:

1

(a) “Collateral” means ITT ESI’s described personal property, both now owned and hereafter acquired, if and to the extent the same is identified in a Deposit Account Control Agreement, a Securities Account Control Agreement or a Letter of Credit, and all proceeds and products of all of the foregoing.

(b) “Deposit Account Control Agreement” means a Deposit Account Control Agreement, among ITT ESI, the CUSO and a Designated Financial Institution substantially in form of Exhibit 1.1(b) attached hereto.

(c) “Event of Default” has the meaning provided in Article VI hereof.

(d) “Non-Renewal Notice” means a notice of non-renewal given by the issuer of a Letter of Credit as provided in Section 2.2(f).

(e) “Obligations” mean the full and punctual observance and performance of all present and future duties, covenants, liabilities and responsibilities due to the CUSO by ITT ESI under (i) Article III of the Risk Sharing Agreement and (ii) the Security Documents, whether or not any instrument or agreement relating thereto specifically refers to this Agreement, as well as all renewals, consolidations, re-castings and extensions of any of the foregoing, the parties acknowledging that the nature of the relationship created hereby contemplates the incurrence of Obligations by ITT ESI to the CUSO pursuant to the Risk Sharing Agreement and the Security Documents after the date hereof.

(f) “Securities Account Control Agreement” means an agreement among ITT ESI, the CUSO and a securities intermediary substantially in the form of Exhibit 1.1(f) attached hereto.

ARTICLE II

SECURITY

SECTION 2.1 Security Interest. As security for the payment and performance of all of the Obligations with respect to each Loan Pool, ITT ESI hereby assigns, pledges and grants to the CUSO a continuing security interest in the Loan Pool Collateral for such Loan Pool. The CUSO’s security interest in Loan Pool Collateral for any Loan Pool shall continually exist until all Obligations with respect to such Loan Pool have been satisfied (whether paid, terminated or otherwise discharged). It is expressly understood and agreed that Loan Pool Collateral for each Loan Pool is separate and distinct and, unless otherwise expressly agreed to in writing by ITT ESI, shall not secure any Obligations with respect to any other Loan Pool.

2

SECTION 2.2 Covenants and Representations Concerning Collateral. With respect to all of the Collateral, ITT ESI covenants, warrants and represents that:

(a) No financing statement covering any of the Collateral is on file in any public office or financing records except for financing statements in favor of the CUSO and ITT ESI is the legal and beneficial owner of all of the Collateral, free and clear of all Liens, except for Permitted Liens.

(b) The security interest granted the CUSO hereunder shall constitute a first priority Lien upon the Collateral. Except and to the extent permitted under the Risk Sharing Agreement or any applicable Security Document, ITT ESI shall not, and the CUSO does not authorize ITT ESI to, sell, assign or otherwise dispose of any interest in the Collateral. ITT ESI shall not, without the CUSO’s prior written consent, permit any other Lien or claim or right of any third party, to be created or remain on the Collateral excepting only Permitted Liens.

(c) ITT ESI will notify the CUSO in writing of any litigation directly involving any of the Collateral which ITT ESI knows or has reason to believe is pending or threatened. ITT ESI will promptly pay when due all taxes and all other such charges and fees affecting or arising out of or relating to the Collateral and shall defend the Collateral, at ITT ESI’s sole expense, against all claims and demands of any Persons claiming any interest in the Collateral adverse to the CUSO.

(d) ITT ESI shall do, make, execute and deliver all such additional and further acts, things, deeds, assurances, instruments and documents as the CUSO may from time to time reasonably request to vest in and assure to the CUSO its rights hereunder or in any of the Collateral, including, without limitation, placing legends on Collateral or on books and records pertaining to Collateral stating that the CUSO has a security interest therein.

(e) ITT ESI shall cooperate with the CUSO to obtain and keep in effect a Deposit Account Control Agreement with respect to each deposit account, and a Securities Account Control Agreement with respect to all investment property that is a part of the Collateral.

(f) If any Obligation shall be secured by a Letter of Credit, such Letter of Credit shall be for a term of not less than one (1) year and provide that such term shall be automatically extended for successive one (1) year terms unless, not less than sixty (60) days prior to the then applicable expiration date thereof, the issuer delivers written notice (to both the CUSO and to ITT ESI) of the issuer’s unwillingness to extend such expiration date. Such Letter of Credit shall provide that it may be drawn by one or more sight drafts, each accompanied by a signed statement in the form provided in Exhibit 2.2(f) attached hereto.

(g) ITT ESI authorizes the CUSO to file financing statements covering the Collateral and containing such legends as the CUSO shall reasonably deem necessary or desirable to perfect and continue perfection of the CUSO’s security interest in the Collateral.

3

(h) ITT ESI shall not file any amendments, correction statements or termination statements concerning the Collateral without the prior written consent of the CUSO.

SECTION 2.3 Care of Collateral. ITT ESI shall have all risk of loss of the Collateral. The CUSO shall have no liability or duty, express or implied, either before or after the occurrence of an Event of Default, on account of loss of or damage to, to collect or enforce any of its rights against, the Collateral, to collect any income accruing on the Collateral, or to preserve rights against ITT ESI or other Persons with prior interests in the Collateral. If the CUSO actually receives any notices requiring action with respect to any Collateral in the CUSO’s possession, the CUSO shall take reasonable steps to forward such notices to ITT ESI. ITT ESI is responsible for responding to notices concerning the Collateral, voting the Collateral, and exercising rights and options, calls and conversions of the Collateral. The CUSO’s sole responsibility is to take such action as is reasonably requested by ITT ESI in writing, however, the CUSO is not responsible to take any action that, in the CUSO’s reasonable judgment, would adversely affect the value of the Collateral as security for the Obligations. While the CUSO is not required to take certain actions, if action is needed, in the CUSO’s sole discretion, to preserve and maintain the Collateral, ITT ESI authorizes the CUSO to take such actions, but the CUSO is not obligated to do so.

ARTICLE III

REPRESENTATIONS AND WARRANTIES

To induce the CUSO to enter into this Agreement, ITT ESI represents and warrants to the CUSO that:

SECTION 3.1 State of Incorporation and Legal Name. ITT ESI’s state of incorporation and exact legal name are set forth in the first paragraph of this Agreement.

SECTION 3.2 Good Standing. ITT ESI is a corporation duly organized, legally existing and in good standing under the laws of the State of its incorporation.

Section 3.3 Authority. ITT ESI has full power and authority to enter into this Agreement, to execute and deliver all documents and instruments required hereunder and to incur and perform the obligations provided for herein, all of which have been duly authorized by all necessary and proper corporate and other action, and no consent or approval of any Person, which has not been obtained is required as a condition to the validity or enforceability hereof or thereof.

SECTION 3.4 Binding Agreements. This Agreement has been duly and properly executed by ITT ESI, constitutes the valid and legally binding obligation of ITT ESI and is fully enforceable against ITT ESI in accordance with its terms, subject only to laws affecting the rights of creditors generally and application of general principles of equity.

4

SECTION 3.5 No Conflicting Agreements. Neither the execution, delivery and performance by ITT ESI of this Agreement and any Deposit Account Control Agreement and/or Securities Account Control Agreement, nor ITT ESI’s procurance and delivery to the CUSO of any Letter of Credit will (a) violate (i) any provision of law or any order, rule or regulation of any court or agency of government, (ii) any award of any arbitrator, (iii) the Charter or Bylaws of ITT ESI, or (iv) any indenture, contract, agreement, mortgage, deed of trust or other instrument to which ITT ESI is a party or by which ITT ESI or any of Its property is bound, or (b) be in conflict with, result in a breach of or constitute (with due notice and/or lapse of time) a material default under, any such award, indenture, contract, agreement, mortgage, deed of trust or other instrument, or result in the creation or imposition of any Lien upon the Collateral except for Liens created in favor of the CUSO under or pursuant to this Agreement.

SECTION 3.6 Perfection and Priority of Collateral. The CUSO has or upon proper recording of any financing statement, execution of any Deposit Account Control Agreement, Securities Account Control Agreement or delivery of Collateral to the CUSO’s possession, will have and will continue to have as security for the Obligations, a valid and perfected Lien on and security interest in all Collateral.

ARTICLE IV

AFFIRMATIVE COVENANTS

ITT ESI covenants and agrees with the CUSO that, until (a) all Obligations have been satisfied in full, (b) there exists no commitment by the CUSO which could give rise to any additional Obligations, and (c) all security interests granted the CUSO hereunder have terminated, ITT ESI will:

SECTION 4.1 Further Assurances and Corrective Instruments. Promptly execute, acknowledge and deliver, or cause to be executed, acknowledged and delivered, to the CUSO from time to time such supplements hereto and such other instruments and documents as may be reasonably requested by the CUSO to protect and preserve the Collateral, the CUSO’s security interest therein, perfection of the CUSO’s security interest and/or the CUSO’s rights and remedies hereunder.

SECTION 4.2 Collateral Information. Deliver to the CUSO promptly upon the CUSO’s request, and periodically if the CUSO shall so require, such written statements, schedules or reports concerning the Collateral in such form, containing such information and accompanied by such documents as the CUSO may from time to time reasonably request.

ARTICLE V

NEGATIVE COVENANTS

ITT ESI covenants and agrees with the CUSO that, until (a) all Obligations have been satisfied in full and (b) there exists no commitment by the CUSO which could give rise to any additional Obligations and (c) all security interests granted the CUSO hereunder have terminated, ITT ESI will not, directly or indirectly:

Section 5.1 Liens. Without the CUSO’s prior written consent, create, incur, assume or permit to exist, directly or indirectly, any Lien (other than Permitted Liens) upon any Collateral.

5

SECTION 5.2 Change of Name. Except upon prior written notice to the CUSO, change the name of ITT ESI.

ARTICLE VI

EVENTS OF DEFAULT

The occurrence of any one or more of the following events shall constitute an “Event of Default” (and, unless otherwise indicated, such event shall constitute an “Event of Default” only with respect to the Loan Pool to which it relates and the occurrence of such relating only to a Loan Pool shall not vest in the CUSO any rights or remedies with respect to any other Loan Pool or any Loan Pool Collateral for any other Loan Pool):

SECTION 6.1 Failure to Pay. The failure of ITT ESI to pay any of the Obligations after the same is due and payable (whether by acceleration, declaration, extension or otherwise) within thirty (30) days after written notice to ITT ESI specifying such failure (including each amount unpaid and the Loan Pool to which it relates).

SECTION 6.2 Covenants and Agreements. The failure of ITT ESI to perform, observe or comply with any of its covenants set forth in this Agreement or any of the other Security Documents.

SECTION 6.3 Information, Representations and Warranties. If any representation or warranty made herein or if any information contained in any financial statement, application, schedule, report or any other document given by ITT ESI in connection with the any of the Collateral is not in all material respects true and accurate or if ITT ESI omitted to state any material fact or any fact necessary to make such information not materially misleading.

SECTION 6.4 Default under Risk Sharing Agreement. The occurrence of an Event of Default under the Risk Sharing Agreement by ITT ESI (which shall be deemed an Event of Default as to all Loan Pools and all Loan Pool Collateral).

SECTION 6.5 Adverse Change in Value of Collateral. The determination in good faith by the CUSO that the value of any Loan Pool Collateral has declined to an amount less than the amount that ITT ESI is required to maintain pursuant to Article VI of the Risk Sharing Agreement (a “Collateral Deficiency”) and ITT ESI’s failure to provide additional Collateral having a then current fair market value at least equal to such deficiency within thirty (30) days after written notice thereof to ITT ESI.

6

ARTICLE VII

RIGHTS AND REMEDIES

SECTION 7.1 Rights and Remedies of the CUSO. Upon and after the occurrence of an Event of Default with respect to any Loan Pool, the CUSO may, without notice or demand, exercise, in any jurisdiction in which enforcement hereof is sought, the following rights and remedies with respect to the related Loan Pool Collateral, in addition to the rights and remedies available to the CUSO under the Security Documents, the rights and remedies of a secured party under the Uniform Commercial Code and all other rights and remedies available to the CUSO under applicable law, all such rights and remedies being cumulative and enforceable alternatively, successively or concurrently:

(a) Institute any proceeding or proceedings to enforce the Obligations and any Liens of the CUSO respecting the subject Loan Pool and related Loan Pool Collateral.

(b) Take possession of the related Loan Pool Collateral.

(c) Enforce ITT ESI’s rights against any other obligor on any related Loan Pool Collateral.

SECTION 7.2 Power of Attorney. Effective upon the occurrence of an Event of Default with respect to any Loan Pool, ITT ESI hereby designates and appoints the CUSO and its designees as attorney-in-fact of ITT ESI, irrevocably and with power of substitution, with authority to endorse ITT ESI’s name on any notes, acceptances, checks, drafts, money orders, instruments or other evidences of payment or proceeds of the related Loan Pool Collateral that may come into the CUSO’s possession; to execute proofs of claim and loss; and to perform all other acts necessary and advisable, in the CUSO’s sole discretion, to carry out and enforce this Agreement and the Security Documents as to the applicable Loan Pool and related Loan Pool Collateral. All acts of said attorney or designee are hereby ratified and approved by ITT ESI and said attorney or designee shall not be liable for any acts of commission or omission nor for any error of judgment or mistake of fact or law, excepting only any acts, errors or mistakes resulting from the gross negligence or willful misconduct of said attorney or designee. This power of attorney is coupled with an interest and is irrevocable so long as any of the Obligations remain unpaid or unperformed or there exists any commitment by the CUSO which could give rise to any Obligations.

SECTION 7.3 Notice of Disposition of Collateral and Disclaimer of Warranties. It is mutually agreed that commercial reasonableness and good faith require the CUSO to give ITT ESI not less than ten (10) days prior written notice of the time and place of any public disposition of any Collateral or of the time after which any private disposition or any other intended disposition is to be made.

7

SECTION 7.4 Costs and Expenses. ITT ESI shall pay to the CUSO on demand the amount of all expenses paid or incurred by the CUSO after occurrence of an Event of Default, including attorneys’ fees and court costs, in exercising or enforcing any of its rights, under any of the Security Documents or under applicable law. The provisions of this Subsection shall survive the termination of this Agreement and the CUSO’s security interest hereunder and the payment of all Obligations.

SECTION 7.5 Letters of Credit. In the event of an Event of Default with respect to a Loan Pool secured by a Letter of Credit as to which action is permitted pursuant to Article VIII, the CUSO shall draw on such Letter of Credit only so much as shall be necessary to cure such Event of Default. However, if, by the terms of any Letter of Credit, the CUSO is permitted to draw the same on account of a failure to extend the expiration date thereof or provide a substitute Letter of Credit therefor, the CUSO shall hold and apply the proceeds thereof in the same manner as provided in Section 7.6 with respect to excess proceeds of Loan Pool Collateral.

SECTION 7.6 Application of Proceeds. Notwithstanding anything to the contrary provided in or implied from this Agreement, proceeds of Loan Pool Collateral shall be applied to ITT ESI Risk Payments due but not yet paid related to such Loan Pool and any excess proceeds thereof shall be held by the CUSO in an interest bearing account, maintained at a Designated Financial Institution. Such excess proceeds (including all interest) shall be applied to future ITT ESI Risk Payments due but not yet paid related to such Loan Pool until no further Loans in such Loan Pool remain subject to ITT’s obligation pursuant to Article III of the Risk Sharing Agreement. Within ten (10) days thereafter, the CUSO shall remit any and all remaining proceeds to ITT ESI. To the extent proceeds are applied to ITT ESI Risk Payments due pursuant to Article III of the Risk Sharing Agreement but not yet paid, Article IV thereof shall apply to proceeds thereof thereafter received by the CUSO. The CUSO may defer the application of non-cash proceeds of Collateral to the Obligations until cash proceeds are actually received by the CUSO.

ARTICLE VIII

ORDER OF LIQUIDATION AND APPLICATION OF COLLATERAL

Notwithstanding anything to the contrary provided in or to be implied from this Agreement or any of the other Security Documents, upon occurrence of an Event of Default, any right of the CUSO to take action to enforce Liens on or otherwise with respect to any related Loan Pool Collateral shall be taken in the following order:

(a) first with respect to Loan Pool Collateral other than Letters of Credit; and

(b) if and to the extent any Obligations with respect to the subject Loan Pool remain unsatisfied, with respect to Letters of Credit that are related Loan Pool Collateral.

8

ARTICLE IX

MISCELLANEOUS

SECTION 9.1 Performance for ITT ESI. The CUSO may, in the CUSO’s sole discretion, but the CUSO shall not be obligated to, whether or not an Event of Default shall have occurred, advance funds on behalf of ITT ESI, upon not less than ten (10) days prior written notice to ITT ESI, in order to insure ITT ESI’s compliance with any covenant, warranty, representation or agreement of ITT ESI made in or pursuant to any of the Security Documents, or to preserve or protect any right or interest of the CUSO in the Collateral or under or pursuant to this Agreement or any of the Security Documents, including, without limitation, the payment of any taxes and the satisfaction or discharge of any judgment or any Lien upon the Collateral; provided, however, that the making of any such advance by the CUSO shall not constitute a waiver by the CUSO of any Event of Default with respect to which such advance is made nor relieve ITT ESI of any such Event of Default. ITT ESI shall pay to the CUSO upon demand all such advances made by the CUSO. All such advances shall be deemed to be included in the Obligations to which they relate and secured by the security interest in the related Loan Pool Collateral; provided, however, that the provisions of this Subsection shall survive the termination of this Agreement and the CUSO’s security interest hereunder and the payment of all other Obligations.

SECTION 9.2 Waivers by ITT ESI. ITT ESI waives, to the extent the same may be waived under applicable law: (a) notice of acceptance of this Agreement; and (b) upon the occurrence of any Event of Default, with respect to any Loan Pool (i) all rights of redemption of ITT ESI with respect to the related Loan Pool Collateral, (ii) presentment, demand for payment, protest and notice of non-payment and all exemptions with respect to such Loan Pool and/or the related Loan Pool Collateral, (iii) any and all other notices or demands which by applicable law must be given to or made upon ITT ESI by the CUSO with respect to such Loan Pool and/or the related Loan Pool Collateral, (iv) settlement, compromise or release of the obligations of any person primarily or secondarily liable upon any of the Obligations with respect to such Loan Pool and/or the related Loan Pool Collateral, and (v) substitution, impairment, exchange or release of any related Loan Pool Collateral. Subject to the provisions of Section 2.1 and Article VIII hereof, ITT ESI agrees that the CUSO may exercise any or all of its rights and/or remedies under the Security Documents and under applicable law without resorting to and without regard to any Collateral or other sources of liability with respect to any of the Obligations.

SECTION 9.3 Release and Termination. Within ten (10) days following both all Obligations having been satisfied in full as to any Loan Pool (whether paid, terminated or otherwise discharged) and there existing no commitment by the CUSO that could give rise to any additional Obligations as to such Loan Pool, the CUSO shall (i) release control of any security interest in all related Collateral perfected by control (including without limitation providing notice to the depository institution or intermediary of termination of any subject Deposit Account Control Agreement or Securities Account Control Agreement), (ii) return all Letters of Credit related thereto to ITT ESI, and (iii) terminate any financing statement filed against the related Collateral.

9

SECTION 9.4 Waivers. Neither any failure nor any delay on the part of any party in exercising any right, power or remedy, under any of the Security Documents or under applicable law shall operate as a waiver thereof by such party, nor shall a single or partial exercise thereof by any party preclude any other or further exercise thereof or the exercise of any other right, power or remedy by such party.

SECTION 9.5 Modifications. No modifications or waiver of any provision of any of the Security Documents shall in any event be effective unless the same shall be in writing signed by both parties, and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given. No notice to or demand upon ITT ESI in any case shall entitle ITT ESI to any other or further notice or demand in the same, similar or other circumstances related.

SECTION 9.6 Notices. Any notice, request or other communication in connection with this Agreement shall be subject to the provisions of the Risk Sharing Agreement concerning notice.

SECTION 9.7 Applicable Law and Consent to Jurisdiction. The performance and construction of the Security Documents shall be governed by the laws of the State of Indiana.

SECTION 9.8 Survival: Successors and Assigns. All covenants, agreements, representations and warranties made in any of the Security Documents shall survive the execution and delivery thereof, and shall continue in full force and effect until all Obligations have been satisfied in full (whether paid, terminated or otherwise discharged), and there exists no commitment by the CUSO which could give rise to any Obligations. Whenever in this Agreement any of the parties hereto is referred to, such reference shall be deemed to include the successors and assigns of such party. The CUSO shall not assign the Risk Sharing Agreement, any of the Security Documents and/or all or any part of its security interest in the Collateral without ITT ESI’s express prior written consent, which consent may be withheld or delayed for any reason or for no reason. All covenants, agreements, representations and warranties by or on behalf of ITT ESI which are contained in any of the Security Documents shall inure to the benefit of the CUSO, its successors and assigns. ITT ESI may not assign this Agreement or any of its rights hereunder without the prior written consent of the CUSO which consent shall not be unreasonably withheld or delayed.

SECTION 9.9 Severability. If any term, provision or condition, or any part thereof, of this Agreement or any of the Loan Documents shall for any reason be found or held invalid or unenforceable by any court or governmental agency of competent jurisdiction, such invalidity or unenforceability shall not affect the remainder of such term, provision or condition nor any other term, provision or condition, and this Agreement and the Security Documents shall survive and be construed as if such invalid or unenforceable term, provision or condition had not been contained therein.

10

SECTION 9.10 Merger and Integration. The Security Documents (with the Risk Sharing Agreement and the Program Documents) contain the entire agreement of the parties hereto with respect to the matters covered and the transactions contemplated hereby, and no other agreement, statement or promise made by any party hereto, or by any employee, officer, agent or attorney of any party hereto, which is not contained herein shall be valid or binding.

SECTION 9.11 Counterparts. This Agreement may be executed in any number of counterparts and by different parties hereto on separate counterparts, each of which, when so executed and delivered, shall be an original, but all such counterparts shall together constitute one and the same instrument.

SECTION 9.12 Headings. The headings and sub-headings contained in the titling of this Agreement are intended to be used for convenience only and shall not be used or deemed to limit or diminish any of the provisions hereof.

IN WITNESS WHEREOF, the parties hereto have executed or caused this Agreement to be executed as of the date first above written.

ITT EDUCATIONAL SERVICES, INC.
By:
	Name:                                                                             Title:

11

EXHIBIT 1.1(b)

TO

SECURITY AGREEMENT

DEPOSIT ACCOUNT CONTROL AGREEMENT

Deposit Account Control Agreement (this “Agreement”), dated as of <DATE>, 20            , by and among STUDENT CU CONNECT CUSO, LLC, a Delaware limited liability company (“Secured Party”); ITT EDUCATIONAL SERVICES, INC., a Delaware corporation (“Debtor”); and <NAME OF BANK> with an address at <ADDRESS OF BANK> (“Bank”).

PREAMBLE:

Debtor has granted Secured Party a security interest in a deposit account maintained by Bank for Debtor. The parties are entering into this agreement to perfect Secured Party’s security interest in that account.

TERMS:

Section 1. The Account. Bank maintains a deposit account for Debtor, currently numbered <NUMBER> and titled <TITLE OF ACCOUNT> (as such account may be renumbered or retitled, the “Account”). All parties agree that the Account is a “deposit account” within the meaning of Article 9 of the Uniform Commercial Code of the State of Indiana (the “UCC”).

Section 2. Control. Bank will comply with instructions originated by Secured Party directing disposition of the funds in the Account without further consent by Debtor. Except as provided below, Bank will not permit the withdrawal or other disposition of any funds in the Account by Debtor without Secured Party’s prior written consent. Until such time as Secured Party delivers a written notice to Bank that Secured Party is thereby exercising exclusive control over the Account (a “Notice of Exclusive Control”), Bank will (i) distribute to ITT ESI monthly all earnings on the Account and (ii) comply with instructions directing the disposition of funds in the Account originated by Debtor or its authorized representatives and accompanied by a certification from an officer of Debtor to the effect that such disposition will not cause Debtor to be in violation of its collateralization obligations pursuant to Article VI of that certain Risk Sharing Agreement between Debtor and Creditor dated <DATE>, 2009, as from time to time amended, modified or supplemented. Bank will send a copy of any Notice of Exclusive Control that it receives to Debtor within three (3) business days after receipt thereof. After Bank receives a Notice of Exclusive Control and has had reasonable opportunity to comply, it will cease complying with instructions concerning the Account or funds on deposit therein originated by Debtor or its representatives. Bank has not and will not agree with any third party to comply with instructions or other directions concerning the Account or the disposition of funds in the Account originated by such third party without the prior written consent of Secured Party and Debtor.

12

Section 3. Subordination Of Bank’s Security Interest. Bank hereby subordinates all security interests, encumbrances, claims and rights of setoff it may have, now or in the future, against the Account or any funds in the Account other than in connection with the payment of Bank’s customary fees and charges pursuant to its agreement with Debtor and for the reversal of provisional credits.

Section 4. Statements, Confirmations And Notices Of Adverse Claims. Bank will send copies of all statements concerning the Account to each of Debtor and Secured Party at the addresses set forth following their signatures hereto. Bank will provide Secured Party with such information concerning the Account as Secured Party shall from time to time request, provided Debtor would otherwise be entitled to such information. Upon receipt of written notice of any lien, encumbrance or adverse claim against the Account or any funds credited thereto, Bank will make reasonable efforts promptly to notify Secured Party and Debtor thereof.

Section 5. Bank’s Responsibility. Except for acting on Debtor’s instructions in violation of Section 2 above, Bank shall have no responsibility or liability to Secured Party for complying with instructions concerning the Account from Debtor or Debtor’s authorized representatives which are received by Bank before Bank receives a Notice of Exclusive Control and has had reasonable opportunity to act on it. Bank shall have no responsibility or liability to Debtor for complying with a Notice of Exclusive Control or complying with instructions concerning the Account originated by Secured Party, and shall have no responsibility to investigate the appropriateness of any such instruction or Notice of Exclusive Control, unless (i) Bank takes the action after it is served with an injunction, restraining order or other legal process enjoining it from doing so issued by a court of competent jurisdiction and had reasonable opportunity to act on the injunction, restraining order or other legal process or (ii) Bank acts in collusion with Secured Party in violating Debtor’s rights.

Section 6. Indemnity. Debtor and Secured Party hereby agree to indemnify and hold harmless Bank, its directors, officers, agents and employees against any and all claims, causes of action, liabilities, lawsuits, demands and damages, including without limitation, any and all court costs and reasonable attorney’s fees, in any way related to or arising out of or in connection with this Agreement or any action taken or not taken by Bank pursuant to the terms of this Agreement, except to the extent caused by Bank’s gross negligence or willful misconduct or Bank’s breach of any of the provisions hereof.

Section 7. Customer Agreement. In the event of a conflict between this Agreement and any other agreement between the Bank and the Debtor relating to the Account, the terms of this Agreement will prevail; provided, however, that this Agreement shall not alter or affect any mandatory arbitration provision currently in effect between Bank and Debtor pursuant to a separate agreement.

Section 8. Termination. This Agreement shall continue in effect until Secured Party has notified Bank in writing that this Agreement, or its security interest in the Account, is terminated.

13

Upon receipt of such notice, the obligations of Bank hereunder with respect to the operation and maintenance of the Account after the receipt of such notice shall terminate, Secured Party shall have no further right to originate instructions concerning the Account and any previous Notice of Exclusive Control delivered by Secured Party shall be deemed to be of no further force and effect.

Section 9. Complete Agreement; Amendments. This Agreement sets forth the entire agreement of the parties with respect to the subject matter hereof, and, subject to Section 7 above supersedes any prior agreement and contemporaneous oral agreements of the parties concerning its subject matter. No amendment, modification or (except as otherwise specified in Section 8 above) termination of this Agreement, nor any assignment of any rights hereunder (except to the extent contemplated under Section 12 below), shall be binding on any party hereto unless it is in writing and is signed by each of the parties hereto, and any attempt to so amend, modify, terminate or assign except pursuant to such a writing shall be null and void. No waiver of any rights hereunder shall be binding on any party hereto unless such waiver is in writing and signed by the party against whom enforcement is sought.

Section 10. Governing Law. This Agreement and the agreement governing the Account shall be governed by and construed in accordance with the law of the State of Indiana. The parties agree that said State of Indiana is the “bank’s jurisdiction” for purposes of the UCC.

Section 11. Severability. To the extent a provision of this Agreement is unenforceable, this Agreement will be construed as if the unenforceable provision were omitted.

Section 12. Successors And Assigns. The terms of this Agreement shall be binding upon, and shall inure to the benefit of, the parties hereto and their respective successors, heirs and personal representatives. This Agreement may be assigned by Secured Party to any successor of Secured Party under and only as permitted in its Security Agreement with Debtor, provided that written notice thereof is given by Secured Party to Bank.

Section 13. Notices. Except as otherwise expressly provided herein, any notice, order, instruction, request or other communication required or permitted to be given under this Agreement shall be in writing and deemed to have been properly given when delivered in person, or when sent by telecopy or other electronic means and electronic confirmation of error-free receipt is received or upon receipt of notice sent by certified or registered United States mail, return receipt requested, postage prepaid, addressed to the party at the address set forth after such party’s signature hereto. Any party may change its address for notices in the manner set forth above.

Section 14. Jury Waiver. EACH PARTY WAIVES ITS RIGHT TO A JURY TRIAL WITH RESPECT TO ANY ACTION OR CLAIM ARISING OUT OF ANY DISPUTE IN CONNECTION WITH THIS AGREEMENT, ANY RIGHTS, REMEDIES, OBLIGATIONS, OR DUTIES HEREUNDER, OR THE PERFORMANCE OR ENFORCEMENT HEREOF OR THEREOF.

14

Section 15. Counterparts. This Agreement may be executed in any number of counterparts, all of which shall constitute one and the same instrument, and any party hereto may execute this Agreement by signing and delivering one or more counterparts.

IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by their respective officers thereunto duly authorized as of the date first above written.

SIGNATURES:

SECURED PARTY:

STUDENT CU CONNECT CUSO, LLC,
By:
	Name:
	Title:
	Address: 8700 Indian Creek Parkway, Suite 120 Overland Park, Kansas 66210 Attention: Tony Ferris

DEBTOR:

ITT EDUCATIONAL SERVICES, INC.
By:
	Name:
	Title:
	Address: Chief Financial Officer ITT Educational Services, Inc. 13000 North Meridian Street Carmel, IN 46032-1404

BANK:

<BANK>
By:
	Name:
	Title:

15

EXHIBIT 1.1(f)

TO

SECURITY AGREEMENT

SECURITIES ACCOUNT CONTROL AGREEMENT

Securities Account Control Agreement (this “Agreement”), dated as of <DATE>, 20            , by and among STUDENT CU CONNECT CUSO, LLC, a Delaware limited liability company (“Secured Party”); ITT EDUCATIONAL SERVICES, INC., a Delaware corporation (“Debtor”); and <NAME OF SECURITIES INTERMEDIARY> with an address at <ADDRESS OF SECURITIES INTERMEDIARY> (“Intermediary”).

PREAMBLE:

Debtor has granted Secured Party a security interest in a securities account maintained by Intermediary for Debtor. The parties are entering into this Agreement to perfect Secured Party’s security interest in that account.

TERMS:

Section 1. The Account. Intermediary represents and warrants to Secured Party that:

1.1 Intermediary maintains a securities account number <NUMBER> for Debtor titled <TITLE OF ACCOUNT> (as such account may be renumbered or retitled, the “Account”).

1.2 Exhibit A is a statement produced by Intermediary in the ordinary course of its business regarding the property credited to the Account at the statement’s date. Intermediary does not know of any inaccuracy in such statement.

1.3 Intermediary does not know of any claim to or interest in the Account, except for claims and interests of the parties referred to in this Agreement.

1.4 All property credited to the Account, and all other rights of Debtor against Intermediary arising out of the Account, including any free credit balances, will be treated as “financial assets” under Article 8 of the Indiana Uniform Commercial Code.

Section 2. Control By Secured Party. Intermediary will comply with all notifications it receives directing it to transfer or redeem any financial assets in the Account (each an “entitlement order”) originated by Secured Party without further consent by Debtor.

Section 3. Subordination Of Intermediary’s Security Interest. Intermediary subordinates in favor of Secured Party any security interest, lien or right of setoff Intermediary may have, now or in the future, against the Account or financial assets in the Account, except that Intermediary will retain its prior lien on financial assets in the Account to secure payment for financial assets purchased for the Account and normal commissions and fees for the Account.

16

Section 4. Debtor’s Rights In Account. Except as otherwise provided in this Section 4, Intermediary will comply with entitlement orders originated by Debtor without further consent by Secured Party. If Secured Party notifies Intermediary that Secured Party will exercise exclusive control over the Account (a “Notice of Exclusive Control”), Intermediary will cease (i) complying with entitlement orders or other directions concerning the Account originated by Debtor, and (ii) distributing to Debtor interest and/or dividends on financial assets in the Account. Bank will send a copy of any Notice of Exclusive Control that it receives to Debtor within three (3) business days after receipt thereof. Until Intermediary receives a Notice of Exclusive Control, Intermediary may distribute to Debtor all interest and regular cash dividends on financial assets in the Account. Intermediary will not comply with any entitlement order originated by Debtor that would require Intermediary to make a free delivery to Debtor or any other person unless such entitlement order is accompanied by a certification from an officer of Debtor that such free delivery will not cause the Debtor to be in violation of Article VI of that certain Risk Sharing Agreement between Debtor and Secured Party dated <DATE>, 2009, as from time to time amended, modified or supplemented.

Section 5. No Third Party Control. Intermediary represents and warrants that no third party has a right to give an entitlement order regarding financial assets in the Account. Intermediary will not agree with any third party that Intermediary will comply with entitlement orders originated by the third party.

Section 6. Statements, Confirmations And Notices Of Adverse Claims. Intermediary will send copies of all statements and confirmations for the Account simultaneously to Debtor and Secured Party. Intermediary will provide Secured Party with such information concerning the Account as Secured Party shall from time to time request, provided Debtor would otherwise be entitled to such information. Intermediary will use reasonable efforts to promptly notify Secured Party and Debtor if any other person claims that it has a property interest in a financial asset in the Account and that it is a violation of that person’s rights for anyone else to hold, transfer or deal with the financial asset.

Section 7. Intermediary’s Responsibility.

7.1 Except for permitting a withdrawal, delivery or payment in violation of Section 4, Intermediary will not be liable to Secured Party for complying with entitlement orders from Debtor that are received by Intermediary before Intermediary receives and has a reasonable opportunity to act on a Notice of Exclusive Control. Intermediary will not be liable to Debtor for complying with a Notice of Exclusive Control or with entitlement orders originated by Secured Party, unless (i) Intermediary takes the action after it is served with an injunction, restraining order or other legal process enjoining it from doing so, issued by a court of competent jurisdiction, and had a reasonable opportunity to act on the injunction, restraining order or other legal process, or (ii) Intermediary acts in collusion with Secured Party in violating Debtor’s rights.

7.2 This Agreement does not create any obligation of Intermediary except for those expressly set forth in this Agreement. In particular, Intermediary need not investigate whether (i) Secured Party is entitled under Secured Party’s agreements with Debtor to give an entitlement order or a Notice of Exclusive Control or (ii) Debtor is entitled to give an entitlement orderpursuant to Section 4 hereof. Intermediary may rely on notices and communications it believes are given by the appropriate party.

17

Section 8. Indemnity. Secured Party and Debtor will indemnify Intermediary, its officers, directors, employees, and agents against claims, liabilities and expenses with respect to Intermediary’s actions in accordance with this Agreement (including reasonable attorneys’ fees and disbursements), except to the extent the claims, liabilities, or expenses are caused by Intermediary’s gross negligence or willful misconduct. Secured Party’s and Debtor’s liability under this Section is joint and several.

Section 9. Termination. Secured Party may terminate this Agreement by notice to Intermediary and Debtor. Intermediary may terminate this Agreement on <NUMBER> days’ notice to Secured Party and Debtor. If Secured Party notifies Intermediary that Secured Party’s security interest in the Account has terminated, this Agreement will immediately terminate. Sections 7, “Intermediary’s Responsibility,” and 8, “Indemnity,” will survive termination of this Agreement.

Section 10. Complete Agreement; Amendments. This Agreement is the entire agreement, and supersedes any prior agreements and contemporaneous oral agreements, of the parties concerning its subject matter; provided, however, that this Agreement shall not alter or affect any mandatory arbitration provision (if any) currently in effect between Intermediary and Debtor pursuant to a separate agreement. No amendment of, or waiver of a right under, this Agreement will be binding unless it is in writing and signed by the party to be charged.

Section 11. Governing Law. This Agreement will be governed by the laws of the State of Indiana.

Section 12. Severability. To the extent a provision of this Agreement is unenforceable, this Agreement will be construed as if the unenforceable provision were omitted.

Section 13. Successors And Assigns. A successor to or assignee of Secured Party’s rights and obligations under the security agreement between Secured Party and Debtor will succeed to Secured Party’s rights and obligations under this Agreement.

Section 14. Notices. A notice or other communication to a party under this Agreement will be in writing (except that entitlement orders may be given orally), will be sent to the party’s address set forth below or to such other address as the party may notify the other parties and will be effective on receipt.

Section 15. Jury Waiver. EACH PARTY WAIVES ITS RIGHT TO A JURY TRIAL WITH RESPECT TO ANY ACTION OR CLAIM ARISING OUT OF ANY DISPUTE IN CONNECTION WITH THIS AGREEMENT, ANY RIGHTS, REMEDIES, OBLIGATIONS, OR DUTIES HEREUNDER, OR THE PERFORMANCE OR ENFORCEMENT HEREOF OR THEREOF.

Section 16. Counterparts. This Agreement may be executed in any number of counterparts, all of which shall constitute one and the same instrument, and any party hereto may execute this Agreement by signing and delivering one or more counterparts.

18

IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by their respective officers thereunto duly authorized as of the date first above written.

SIGNATURES:

SECURED PARTY:
STUDENT CU CONNECT CUSO, LLC,
By:
	Name:
	Title:
	Address: 8700 Indian Creek Parkway, Suite 120 Overland Park, Kansas 66210 Attention: Tony Ferris

DEBTOR:
ITT EDUCATIONAL SERVICES, INC.
By:
	Name:
	Title:
	Address: Chief Financial Officer ITT Educational Services, Inc. 13000 North Meridian Street Carmel, IN 46032-1404

19

INTERMEDIARY:
<INTERMEDIARY>
By:
	Name:
	Title:

20

EXHIBIT 2.2(F)

CERTIFICATE TO ACCOMPANY SIGHT DRAFT

ON LETTER OF CREDIT

A signed statement of an authorized officer of the CUSO certifying (under penalties of perjury) to both ITT ESI and the issuer as to either of the following:

1. That all of: (a) an “Event of Default” under that certain Security Agreement dated as of <DATE>, 2009 by ITT Educational Services, Inc. (“ITT ESI”) in favor of Student CU Connect CUSO, LLC (“Beneficiary”) has occurred with respect to the related Loan Pool (the “Subject Loan Pool”), (b) the amount that is currently due and owing Beneficiary under said Security Agreement with respect to the Subject Loan Pool, and (c) the amount requested under the related sight draft, when added to all other drawings under this Letter of Credit, does not exceed the amount of this Letter of Credit; or

2. That all of: (a) the Beneficiary has received a Non-Renewal Notice, (b) as of a date that is less than ten (10) days before the then applicable expiration date of this Letter of Credit, ITT ESI has failed to provide the Beneficiary with a replacement letter of credit and/or other substitute collateral, in all cases permitted to replace this Letter of Credit under Section 6.1 of that certain Risk Sharing Agreement dated <DATE>, 2009 between the Beneficiary and ITT ESI, and (c) the amount requested under the related sight draft, when added to all other drawings under this Letter of Credit, does not exceed the amount of this Letter of Credit.

21

FIRST AMENDMENT TO

RISK SHARING AGREEMENT

This FIRST AMENDMENT TO RISK SHARING AGREEMENT (this “Amendment”) is made and entered into effective as of January 13, 2011, by and between ITT EDUCATIONAL SERVICES, INC., a Delaware corporation, on behalf of itself and its Affiliates and subsidiaries (“ITT ESI”), and STUDENT CU CONNECT CUSO, LLC, a Delaware limited liability company operating as a credit union service organization (the “CUSO”).

RECITALS

The following recitals are a material part of this Amendment:

A. ITT ESI and the CUSO are parties to that certain Risk Sharing Agreement entered into as of February 20, 2009 (the “Agreement”).

B. Capitalized terms used in this Amendment and not otherwise defined herein shall have the meanings provided in the Agreement and Schedule A thereto.

C. ITT ESI and the CUSO have agreed to amend the definition of Collateralization Percentage in certain respects.

D. In connection with the foregoing, the parties hereto desire to amend the Agreement as set forth in this Amendment.

AGREEMENT

NOW THEREFORE, in consideration of foregoing and the mutual promises and covenants contained herein, and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows:

1. The definition of Collateralization Percentage, as set forth on Schedule A to the Agreement, is hereby amended to read in its entirety as follows:

“Collateralization Percentage” means, with respect to the Loan Pool for Funding Year 2009, thirty percent (30%); with respect to the Loan Pool for Funding Year 2010 and the Loan Pool for Funding Year 2011, twelve and a half percent (12.5%); and, with respect to the Loan Pool for each and any Funding Year thereafter, ten percent (10%); in each case, unless adjusted as provided in Section 6.3 of the Risk Sharing Agreement.

2. On or before January 18, 2011, ITT ESI shall pledge all additional Collateral required by the foregoing amendment to the definition of Collateralization Percentage determined based upon the principal balances of Loans in the applicable Loan Pools as of December 31, 2010.

3. Section 6.3 of the Agreement is hereby amended by deleting such Section in its entirety and replacing it with the following:

SECTION 9.13 SECTION 6.3. Increase of Collateral in the Event of Default by ITT ESI. In the event ITT ESI shall violate any of the financial covenants or percentages set forth in Section 7.2(b), the Collateralization Percentage applicable to each Loan Pool shall be increased by forty-five percent (45%) and ITT ESI shall provide such additional Collateral within thirty (30) days after written demand therefor by the CUSO; provided however that, if the Collateralization Percentage is increased on account of ITT ESI’s violation of any financial covenant or percentage and ITT ESI thereafter becomes in compliance therewith, the Collateralization Percentage for each Loan Pool shall thereafter be restored to its original amount. For example, if the Collateralization Percentage for a Loan Pool would otherwise be 30%, while ITT ESI is in violation of the financial covenants and percentages set forth in Section 7.2(b), the Collateralization Percentage shall be 43.5%.

4. Except as amended by this Amendment, both the remainder of the Agreement and Schedule A are unchanged and remain in full force and effect.

5. This Amendment may be executed in multiple counterparts, each of which shall for all purposes be deemed to be an original and both of which shall together constitute but one and the same instrument.

[Remainder of Page Intentionally Blank; Signature Page Follows.]

2

IN WITNESS WHEREOF, the parties have caused their names to be signed hereto by their respective duly authorized officers effective as of the date first above written.

ITT EDUCATIONAL SERVICES, INC.
By:	/s/Kevin M. Modany
	Name: Kevin M. Modany
	Title: Chairman and CEO

STUDENT CU CONNECT CUSO, LLC
By:	/s/Joe Karlin
	Name: Joe Karlin
	Title: Program Administrator

[Signature Page to First Amendment to Risk Sharing Agreement.]

3

SECOND AMENDMENT TO

RISK SHARING AGREEMENT

This SECOND AMENDMENT TO RISK SHARING AGREEMENT (this “Amendment”) is made and entered into effective as of March 30, 2011, by and between ITT EDUCATIONAL SERVICES, INC., a Delaware corporation, on behalf of itself and its Affiliates and subsidiaries (“ITT ESI”), and STUDENT CU CONNECT CUSO, LLC, a Delaware limited liability company operating as a credit union service organization (the “CUSO”).

RECITALS

The following recitals are a material part of this Amendment:

A. ITT ESI and the CUSO are parties to that certain Risk Sharing Agreement entered into as of February 20, 2009, as amended by that First Amendment to Risk Sharing Agreement entered into as of January 13, 2011 (as amended, the “Agreement”).

B. Capitalized terms used in this Amendment and not otherwise defined herein shall have the meanings provided in the Agreement and Schedule A thereto.

C. ITT ESI and the CUSO have agreed to amend the Agreement to provide for an alternative current ratio covenant as of certain dates.

D. In connection with the foregoing, the parties hereto desire to amend the Agreement as set forth in this Amendment.

AGREEMENT

NOW THEREFORE, in consideration of the foregoing and the mutual promises and covenants contained herein, and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows:

1. Section 7.2(b)(1)(c) of the Agreement is hereby amended to read in its entirety as follows:

c. Current Ratio. A current ratio, defined as the current assets (assets to be sold or used up in less than one year and any cash or securities pledged as Collateral under this Agreement) divided by the current liabilities (loans or other liabilities with remaining terms of less than one year and the current portion of long-term debt), of ITT ESI, equal to or greater than 1 to 1, except that it shall be equal to or greater than 0.65 to 1 as of March 31, 2011, June 30, 2011 and September 30, 2011. This calculation excludes all unsecured and uncollateralized related-party receivables and payables.

2. Except as amended by this Amendment, the remainder of the Agreement is unchanged and remains in full force and effect.

3. This Amendment may be executed in multiple counterparts, each of which shall for all purposes be deemed to be an original and both of which shall together constitute but one and the same instrument.

[Remainder of Page Intentionally Blank; Signature Page Follows.]

2

IN WITNESS WHEREOF, the parties have caused their names to be signed hereto by their respective duly authorized officers effective as of the date first above written.

ITT EDUCATIONAL SERVICES, INC.
By:	/s/Dan Fitzpatrick
	Name: Dan Fitzpatrick
	Title: EVP CFO

STUDENT CU CONNECT CUSO, LLC
By:	/s/Tony Ferris
	Name: Tony Ferris
	Title: Partner

[Signature Page to Second Amendment to Risk Sharing Agreement.]

3

THIRD AMENDMENT TO

RISK SHARING AGREEMENT

This THIRD AMENDMENT TO RISK SHARING AGREEMENT (this “Amendment”) is made and entered into effective as of May 18, 2012, by and between ITT EDUCATIONAL SERVICES, INC., a Delaware corporation, on behalf of itself and its Affiliates and subsidiaries (“ITT ESI”), and STUDENT CU CONNECT CUSO, LLC, a Delaware limited liability company operating as a credit union service organization (the “CUSO”).

RECITALS

The following recitals are a material part of this Amendment:

A. ITT ESI and the CUSO are parties to that certain Risk Sharing Agreement entered into as of February 20, 2009, and subsequently amended on January 13, 2011, and March 30, 2011 (as so amended, the “Agreement”).

B. Capitalized terms used in this Amendment and not otherwise defined herein shall have the meanings provided in the Agreement and Schedule A thereto.

C. ITT ESI and the CUSO have agreed to amend certain provisions of the Agreement in certain respects.

D. In connection with the foregoing, the parties hereto desire to amend the Agreement as set forth in this Amendment.

AGREEMENT

NOW THEREFORE, in consideration of foregoing and the mutual promises and covenants contained herein, and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows:

1. The definition of “Net Disbursement,” as set forth on Schedule A, is hereby amended for all Loan Pools established on or subsequent to January 1, 2011, but only with respect to the use of the term “Net Disbursements” in the definition of “First Loss Risk”:

“Net Disbursement” means, as to any Loan, the total original sum disbursed, utilizing cash funding from the Participants and the CUSO (but excluding the amount of disbursements made with accumulated refunds from the Commitment Account), to ITT ESI as payment of tuition and other charges, plus all origination and other loan fees, net of any refund or return thereof paid by ITT ESI within sixty (60) days after the disbursement date thereof. The amount of the Net Disbursement on a Loan shall not be reduced for any principal payments made on such Loan, whether by the Borrower, ITT ESI, or otherwise (excepting only refunds as aforesaid), or increased for any capitalized interest charges.

2. The definition of “First Loss Risk,” as set forth on Schedule A, is hereby amended in its entirety as follows:

“First Loss Risk” means, with respect to any Loan Pool, the product produced by multiplying (x) the applicable First Loss Percentage times (y) the aggregate Net Disbursements on all Loans in such Loan Pool. Without limitation of the foregoing, based on reports received from the Servicer, the First Loss Risk for each of the Loan Pools is as follows: (i) 2009 Loan Pool: $21,632,460; (ii) 2010 Loan Pool: $13,849,291; and (iii) 2011 Loan Pool: $19,653,013.

3. Section 3.9 of the Agreement is hereby amended to read in its entirety as follows:

SECTION 3.9 Alteration of Borrower Obligations. From time to time, the CUSO may forbear, revise, modify, extend, amend, change or renew (collectively, an “Alteration”) terms of any Loan (or any documentation or collateral therefor), without thereby releasing ITT ESI from its guarantee provided that such modification is within the Loan Criteria or the Collection and Charge Off Standards. However, any Alteration that reduces the amount that a Borrower is obligated to pay under a Loan will similarly reduce ITT ESI’s guarantee obligations with respect thereto, unless the Alteration consists of a partial payment in settlement of the full outstanding balance of a Charged Off Loan in compliance with an agreement between the CUSO and a collection agency that has been previously consented to by ITT ESI in accordance with the Collection and Charge Off Standards. Further, any Alteration to any Loan in any manner inconsistent with the Loan Criteria or the Collection and Charge Off Standards, will disqualify such Loan as an ITT ESI Risk Loan.

4. Section 7.2(b)(1)(b) of the Agreement is hereby amended to read in its entirety as follows:

b. Long-term Debt to Equity Ratio. A long-term debt to equity ratio, defined as loans and other liabilities with terms extending over one year divided by the shareholders’ equity of ITT ESI, of equal to or less than 5 to 1; provided, however, that ITT ESI shall not be required to maintain any specified long-term debt to equity ratio with respect to the measurement points as of June 30, 2012 and September 30, 2012;

5. Section 7.2(b)(1)(c) of the Agreement is hereby amended to read in its entirety as follows:

c. Current Ratio. A current ratio, defined as the “Total Current Assets” as reported on ITT ESI’s consolidated balance sheet contained in its Forms 10-Q and 10-K filed with the SEC and any cash or securities pledged as Collateral under this Agreement, divided by the “Total Current Liabilities” as reported on ITT ESI’s consolidated balance sheet contained in its Forms 10-Q and 10-K filed with the SEC, of ITT ESI, equal to or greater than: (i) 0.75 to 1 as of June 30, 2012 and September 30, 2012; and (ii) 1 to 1 as of December 31, 2012 and every measurement period thereafter. This calculation excludes all unsecured and uncollateralized related-party receivables and payables.

2

6. Within two Business Days following the date of this Amendment, ITT ESI agrees to pay to the CUSO a fee (the “Waiver Fee”) in respect of the amendments to Sections 7.2(b)(1)(b) and 7.2(b)(1)(c) of the Agreement contained herein, in an amount equal to $200,000.00. The Waiver Fee will be paid by wire transfer to the Operating Account (as defined in the Credit Facility Agreement) of the CUSO. The CUSO shall utilize the Waiver Fee solely to pay valid fees and expenses of the CUSO. The Waiver Fee shall not be considered a part of Monthly Collections or otherwise be payable to or for the benefit of the Participants.

7. Except as amended by this Amendment, both the remainder of the Agreement and Schedule A are unchanged and remain in full force and effect.

8. This Amendment may be executed in multiple counterparts, each of which shall for all purposes be deemed to be an original and both of which shall together constitute but one and the same instrument.

[Signatures appear on the following page]

3

IN WITNESS WHEREOF, the parties have caused their names to be signed hereto by their respective duly authorized officers effective as of the date first above written.

ITT EDUCATIONAL SERVICES, INC.
By:	/s/Kevin M. Modany
	Name: Kevin M. Modany
	Title: Chairman and CEO

STUDENT CU CONNECT CUSO, LLC
By:	/s/ Lisa A. Schlehuber
	Name: Lisa A. Schlehuber
	Title: Board Chair / Manager

[Signature Page to Third Amendment to Risk Sharing Agreement.]

4

EX-10.54

EXHIBIT 10.54

FINANCING PROGRAM AGREEMENT

This FINANCING PROGRAM AGREEMENT (as amended, modified, restated or replaced from time to time, this “Agreement”) is entered into as of February 20, 2009 (“Effective Date”) by ITT EDUCATIONAL SERVICES, INC., a Delaware corporation, on behalf of itself and its Affiliates and subsidiaries (“ITT ESI”) and STUDENT CU CONNECT CUSO, LLC, a Delaware limited liability company operating as a credit union service organization (the “CUSO”).

RECITALS

The following recitals are a material part of this Agreement:

Pursuant to this Agreement, the CUSO intends to conduct the Program utilizing the Originating Entity to provide access for Students across the country to non-governmentally guaranteed student loans. Pursuant to the Purchase Agreement, the Originating Entity will originate Loans to Students and the CUSO will purchase the Loans, creating discrete Loan Pools based on dates of disbursement of Loan proceeds. The Originating Entity will fund and disburse the Loans to ITT ESI. The CUSO will sell Participation Interests in the Loans to the Originating Entity and other Participants pursuant to the Subscription Agreements and Participation Agreement. To induce the CUSO to both induce the Originating Entity to originate, fund and disburse the Loans and itself to purchase such Loans, and to induce the Originating Entity and other Participants to participate in the Loans, ITT ESI has agreed to provide a guarantee for the Loans upon and subject to the terms of the Risk Sharing Agreement.

In consideration of the foregoing and the mutual promises and covenants contained herein, the parties agree as follows:

ARTICLE I

DEFINITIONS

1.1 Definitions. Capitalized terms used in this Agreement and not otherwise defined herein shall have the meanings provided in Schedule A hereto.

1.2 Other Definitional Terms and Interpretive Principles.

(a) As used in this Agreement (i) accounting terms not defined herein, and (ii) accounting terms partly defined herein to the extent not defined, will have the respective meanings given to them under GAAP.

(b) The words “herein,” “hereof” and words of similar import, when used in this Agreement, refer to this Agreement as a whole and not to any particular provision of this Agreement. Section and subsection references are to this Agreement, unless otherwise specified.

(c) When used in this Agreement, words of the masculine gender include the feminine and neuter genders and vice versa, where applicable. Words of the singular number shall include the plural number and vice versa, where applicable.

(d) The terms “include” and “including” mean “including without limitation by reason of enumeration.”

ARTICLE II

THE PROGRAM

2.1 Origination and Sale of Loans.

(a) Pursuant to the Purchase Agreement and subject to the terms and conditions contained herein and therein, (i) the Originating Entity will originate Loans to Borrowers for the purpose of assisting Students with the cost of tuition, fees, books, tools, computers and other expenses associated with their ITT Technical Institute education, (ii) the CUSO will purchase such Loans, and (iii) the Originating Entity will disburse the Loans to ITT ESI.

(b) The CUSO shall ensure that each Borrower is a Student or a co-signer of a Student.

(c) The CUSO shall pay the Purchase Price for each Loan by depositing the Purchase Price (or lesser required amount to the extent there are available funds in the Loan Funding Account) into the Loan Funding Account. The sale and purchase of each Loan shall occur contemporaneously with the disbursement of the Loan proceeds by the Originating Entity to ITT ESI from the Loan Funding Account on the applicable disbursement date. All Loans disbursed in a given Funding Year will constitute a discrete Loan Pool. The parties acknowledge that an individual Loan may provide for additional or a series of disbursements subsequent to the initial funding, in which case any disbursement subsequent to the initial Funding Year will be treated as a new Loan that is included in the Loan Pool for the Funding Year of the subsequent disbursement.

(d) It is the intention of the parties that the purchase and sale of Loans under the Program as provided for in this Agreement and the Purchase Agreement will constitute the purchase and sale of whole loans in accordance with GAAP and not a participation or secured financing.

2.2 Conversion of Open Account Credit into Loans. The parties acknowledge that ITT ESI has heretofore extended open account credit to certain Students in the absence of adequate non-governmentally guaranteed unsecured student loan sources, and may continue to do so. The CUSO shall cause the Originating Entity to originate Loans to Borrowers for the purpose of paying off any open account credit so extended by ITT ESI, so long as those Loans comply with the conditions in Section 2.1(b) of the Purchase Agreement. For this purpose, the CUSO acknowledges that at the time a Loan is originated to some recipients of such open account credit, they may no longer be active Students, so long as they were Students at the time such credit was extended. Prior to the Effective Date, ITT ESI will provide a schedule to the CUSO of the open account credit extended prior to that date, along with the credit criteria utilized by ITT ESI in connection therewith.

2

2.3 Field of Membership. The CUSO shall ensure that the Originating Entity has the requisite field of membership to originate Loans under the Program.

2.4 Estimated Aggregate Funding Commitment. Notwithstanding anything to the contrary in this Agreement or any other Program Document, except as otherwise provided in Section 2.9, the aggregate disbursements to ITT ESI, net of all refunds by ITT ESI, on all Loans originated in all of Funding Years 2009, 2010 and 2011 is not required to exceed the Estimated Aggregate Funding Commitment.

2.5 Opinions of Counsel. The CUSO has obtained the following opinions directed to the Participants, as required by Section 712.4(b) of the NCUA Rules, and upon which ITT ESI may rely: (a) the opinion of the CUSO’s counsel, Messick & Weber P.C., that the Program constitutes a permissible activity for a credit union service organization and that the CUSO is established in a manner that will limit the potential exposure of its member Credit Unions to no more than the loss of funds invested in, or loaned to, the CUSO, as required by Section 712.4(b) of the NCUA Rules, and (b) an opinion of Delaware counsel with respect to Delaware limited liability company law that the CUSO is established in a manner that will limit the potential exposure of its member Credit Unions to no more than the loss of funds invested in, or loaned to, the CUSO.

2.6 Compliance With Purchase Agreement.

(a) The CUSO shall not be obligated to purchase any Loan which does not comply with the conditions precedent in Section 2.11 of the Purchase Agreement.

(b) If the CUSO acquires any Loan which it subsequently determines was not in compliance with the conditions precedent in Section 2.11 of the Purchase Agreement, absent fraud, willful misconduct, gross negligence or breach of the Purchase Agreement by the Originating Entity, (i) the CUSO’s sole recourse will be to exercise all rights of the Originating Entity under the Origination Agreement, and (ii) the Originating Entity will have no liability to ITT ESI, the CUSO or the Participants for any such noncompliance.

(c) ITT ESI shall be exempt from liability under the Risk Sharing Agreement with respect to any Loan which fails to comply with the conditions precedent in Section 2.11 of the Purchase Agreement, to the extent provided in Section 3.7 of the Risk Sharing Agreement.

2.7 Non-Liability of ITT ESI. ITT ESI shall have sole control over all decisions with regard to the admission, advancement, discipline, suspension, withdrawal, termination and graduation of Students. For the avoidance of doubt, except as otherwise provided in the Risk Sharing Agreement, ITT ESI shall have no liability to the Originating Entity, the CUSO or the Participants with respect to any aspect of the Program in the absence of the fraud, willful misconduct or gross negligence of any ITT ESI employee, including but not limited to (a) any acts, errors or omissions of ITT ESI’s financial aid personnel, (b) any information supplied by any Borrower or other Person in connection with any Loan, or (c) any default by any Borrower under a Loan. If a Loan is originated in whole or in part through the fraud, willful misconduct or gross negligence of any ITT ESI employee, the sole remedy of the CUSO will be under Section 3.11 of the Risk Sharing Agreement, and the sole remedy of the Originating Entity and the Participants will be through the CUSO’s exercise of its rights under Section 3.11 of the Risk Sharing Agreement.

3

2.8 Exclusivity. During the Term of this Agreement:

(a) ITT ESI shall not enter into a non-governmentally guaranteed student loan financing program which includes any credit enhancement or similar contractual arrangement with any credit union service organization other than the CUSO, except as permitted by Section 2.9(j) or (m).

(b) The CUSO shall not enter into a similar student loan financing program with any proprietary institution of higher education, as defined under 20 USC 1002, other than with ITT ESI (or an Affiliate thereof).

(c) The CUSO shall procure the agreement of each Participant (and ITT ESI shall be named as an express third party beneficiary of all such agreements) that it will not, prior to January 1, 2012, through a credit union service organization, enter into a similar student loan financing program that includes an institution-provided enhancement or guarantee with any proprietary institution of higher education, as defined under 20 USC 1002, other than with ITT ESI (or an Affiliate thereof), but that such limitation shall not apply to (i) a program whereby the institution pays to the Participant the equivalent of an insurance premium and/or a portion of the interest on behalf of the student borrower, (ii) any participation by the Participant in the Credit Union Student Choice Program as long as the Participant does not control the direction or actions of such Credit Union Student Choice Program, or (iii) loans by the Participant to individual student borrowers who satisfy the Participant’s usual and established loan underwriting standards and not under a program as described in this sentence.

2.9 Loan Funding.

(a) The CUSO shall enter into a Subscription Agreement and Participation Agreement with each Participant, pursuant to which each Participant will commit to both make a capital contribution to the CUSO and to purchase a Participation Interest in Loans originated in Funding Years 2009, 2010 and 2011. The CUSO will cause Participants to deposit their Participation Commitments into the Commitment Account. To the extent the amount of Loans purchased by the CUSO in any Loan Pool exceeds the amounts funded by the Participants for such Loan Pool, the excess will be retained by the CUSO as a Retained CUSO Interest.

(b) The CUSO shall pay the Purchase Price for Loans by transferring funds (including funds representing any CUSO Retained Interest) into the Loan Funding Account and will cause the Originating Entity to disburse Loans to ITT ESI in accordance with the Purchase Agreement.

4

(c) The portion of the Estimated Aggregate Funding Commitment payable in Funding Year 2009 is not required to exceed the Base Funding Year Target. The portion of the Estimated Aggregate Funding Commitment payable in Funding Year 2010 is not required to exceed the 2010 Funding Year Target. The portion of the Estimated Aggregate Funding Commitment payable in Funding Year 2011 is not required to exceed the 2011 Funding Year Target. The Purchase Price for any Loans funded by advances under a Credit Facility provided by ITT ESI shall not be subject to the foregoing limitations.

(d) Not later than twelve (12) Business Days prior to the First Disbursement Date of each Funding Period, ITT ESI will provide the CUSO with an estimate of the aggregate amount to be disbursed on all Loans during such Funding Period.

(e) Not later than three (3) Business Days prior to each disbursement date in each Funding Period, the CUSO shall cause the Originating Entity to provide the CUSO with the actual volume of Loans to be funded on that disbursement date. The CUSO shall deposit the Purchase Price for such Loans into the Loan Funding Account not later than one (1) Business Day prior to such disbursement date; provided, however, that (i) in no event will the CUSO be required to purchase Loans in any Funding Period in an amount greater than twenty-five percent (25%) of the maximum portion of the Estimated Aggregate Funding Commitment for the applicable Funding Year (plus any additional amounts not deposited in previous Funding Periods due to the estimated amounts being less than twenty-five percent (25%) of the maximum portion of the Estimated Aggregate Funding Commitment for the applicable Funding Year), and (ii) the CUSO may deposit more than such twenty-five percent (25%) into the Loan Funding Account in any Funding Period as provided in Section 2.9(f). The CUSO shall cause the Originating Entity to disburse Loans to ITT ESI from the Loan Funding Account on each disbursement date during each Funding Period. Notwithstanding the foregoing, if ITT ESI fails to comply with its collateralization requirement under the Risk Sharing Agreement during any Funding Period, the Originating Entity’s obligation to originate Loans and the CUSO’s obligation to purchase Loans shall be suspended until ITT ESI provides the required Collateral.

(f) If the estimated demand for Loans during any Funding Period exceeds twenty-five percent (25%) of the maximum portion of the Estimated Aggregate Funding Commitment for the applicable Funding Year, not later than five (5) Business Days prior to the First Disbursement Date of such Funding Period, the CUSO shall do one of the following: (i) notify ITT ESI that the entire Loan demand for that Funding Period will be purchased by the CUSO, (ii) notify ITT ESI that an amount greater than twenty-five percent (25%) of the maximum portion of the Estimated Aggregate Funding Commitment for the applicable Funding Year but less than the entire Loan demand will be purchased by the CUSO, or (iii) notify ITT ESI that only the portion of the Estimated Aggregate Funding Commitment for that Funding Period will be purchased by the CUSO. Any amount referred to in clause (i), (ii) or (iii) above shall exclude the amount of any refunds or previously unused amounts in the Commitment Account, which will be dealt with in accordance with Section 2.9(k). If the CUSO fails to provide any such notice on a timely basis, it shall be deemed to have made the election described in clause (iii) above. The portion of the Purchase Price for any Loans financed under any Credit Facility provided by ITT ESI shall not be included in the amount referred to in clause (ii) or (iii) above.

5

(g) The CUSO may finance the purchase of Loans in any manner it deems advisable, including but not limited to (i) selling Participation Interests in such Loans to Participants, (ii) selling Participation Interests in such Loans to additional credit unions, (iii) selling Participation Interests in such Loans to other investors, to the extent permitted under the Federal Credit Union Act and NCUA Rules, (iv) borrowing under a Credit Facility with ITT ESI or a third party Credit Lender, (v) selling additional classes of Membership Interest, whether or not coupled with a Participation Interest, and/or (vi) any other financing method, subject (in the event of any transaction referred to in clauses (i) through (iii) or (v) above) to the rights of existing Participants under the Participation Agreement and any applicable Participants’ right of first refusal provided in the Subscription Agreements. The CUSO shall not enter into any financing transaction with a third party which adversely affects the ability of the CUSO or the Participants to perform their obligations under the Program Documents.

(h) ITT ESI shall have the right (but not the obligation) to finance the purchase of Loans and the CUSO’s operating expenses by making a discretionary revolving Credit Facility available to the CUSO in accordance with mutually acceptable Credit Facility Documents. Any such Credit Facility may be secured by a pledge of the collateral described in the Credit Facility Documents, but in no event will the CUSO pledge any of the Participation Interests in the Loans. If ITT ESI elects to provide such Credit Facility to the CUSO, the CUSO shall use its commercially reasonable best efforts to refinance such Credit Facility with other lender(s) at such time as such financing becomes available to the CUSO on commercially reasonable terms. Any Loan refunds received by the CUSO shall be dealt with in accordance with Section 2.9(k).

(i) Subject to (i) the rights of existing Participants under the Participation Agreement, and (ii) any Participants’ right of first refusal in the Subscription Agreements, the CUSO shall be free at all times to deal in Loans as it sees fit, including without limitation, securitizing Loans and selling whole Loans to ITT ESI or (to the extent permitted under the terms of any Credit Facility) any other Person. From time to time, the CUSO may also sell Participation Interests corresponding to all or a portion of the Retained CUSO Interest to the extent permitted by the Participation Agreement, with the proceeds to the CUSO from any such transaction used to pay down any Credit Facility provided by ITT ESI. No such transaction shall result in, or be deemed to constitute, an assignment of the CUSO’s rights or obligations under the Risk Sharing Agreement without ITT ESI’s written consent.

(j) If for any Funding Period, Funding Year or the Program, the sum of (i) the Participation Commitments of the Participants for such Funding Period, Funding Year or the Program, plus (ii) any advances ITT ESI or another Credit Lender explicitly commits to make under any Credit Facility, plus (iii) other committed funds available to the CUSO, will not be sufficient to allow the CUSO to purchase the estimated demand for Loans during such Funding Period, Funding Year or the Program, then ITT ESI shall be relieved from its obligations under Section 2.8(a) during the applicable Funding Period, Funding Year or the Program, to the extent of the excess of such estimated Loan demand over the sum of (i), (ii) and (iii) above. ITT ESI’s remedy in this Section 2.9(j) shall not be affected by any election by ITT ESI not to provide or advance funds under any Credit Facility.

6

(k) Any amounts in the Commitment Account not utilized in a Funding Period or Funding Year will be carried forward to the following Funding Period or Funding Year and be available for disbursements on Loans occurring in such subsequent Funding Period or Funding Year; provided, however, that no such carry-forward shall reduce the amount of the Estimated Aggregate Funding Commitment for any Funding Period or Funding Year. If any Obligations with respect to Student Loan Purchase Advances (as such terms are defined in the Credit Facility Documents) are outstanding under the Credit Facility Documents, then all amounts paid to the CUSO as Loan refunds, if any, without regard to the Loan Pool related to any such refunded Loan, will be allocated first to the CUSO (and not Monthly Collections) and applied by ITT ESI in payment of such outstanding Obligations. Any such refunded amounts not so allocated to the CUSO will be deposited in the Commitment Account to be used by the CUSO to purchase Loans, subject to Section 7(c) of the Participation Agreement.

(l) The CUSO’s Estimated Aggregate Funding Commitment for any Renewal Term shall equal the sum of the Estimated Aggregate Funding Commitment amounts in effect during the four (4) Funding Periods immediately preceding the Renewal Term, unless ITT ESI and the CUSO have mutually agreed on a new Estimated Aggregate Funding Commitment for such Renewal Term. ITT ESI and the CUSO may, by mutual written agreement, revise the Estimated Aggregate Funding Commitment for any Renewal Term based on the estimated Loan volume and the amount of Participation Commitments obtained by the CUSO for such Renewal Term. Either party may also request (subject to the other party’s approval) a new Estimated Aggregate Funding Commitment for a Renewal Term in accordance with Section 5.3(b)(ii). The procedures described in Sections 2.9(c) – (f) for Funding Year 2011 shall be in effect during any Renewal Term unless otherwise agreed by ITT ESI and the CUSO.

(m) The CUSO shall cause the Participants to fund all Participation Commitments called for under their Subscription Agreements in accordance with their terms and in such manner and on such dates as the CUSO deems necessary to permit the CUSO to comply with the Loan funding provisions of this Section 2.9. If a Participant fails to fully fund its Participation Commitment on a timely basis and does not cure such failure within the time period provided in its Subscription Agreement, the CUSO shall use its commercially reasonable best efforts to obtain such funding from other Participants and/or other sources as described in Section 2.9(g). If the CUSO fails to obtain such funds within sixty (60) days after the due date therefor, then (i) if the CUSO has not fully enforced its rights against any Participant under the Participant’s respective Subscription Agreement and the Participation Agreement, ITT ESI may enforce all of the CUSO’s rights against such Participant under the Participant’s respective Subscription Agreement and the Participation Agreement, and (ii) ITT ESI shall be relieved of its obligations under Section 2.8(a) to the extent of such failure, notwithstanding any election by ITT ESI not to provide or advance funds under any Credit Facility. Unless otherwise agreed by ITT ESI in its sole discretion, no termination by a Participant of its respective Subscription Agreement because of any change in existing law or regulation as provided therein shall relieve the CUSO from its Loan purchase and funding obligations under this Agreement.

7

(n) The amount to be disbursed to ITT ESI in connection with any Loan shall be the principal amount of such Loan, which shall not include origination fees and expenses.

(o) ITT ESI will obtain account agreements from Borrowers who are not already members of the Originating Entity and will pay the Originating Entity’s per Borrower membership fee for each new member to the Originating Entity at the time of each Loan disbursement. Such membership fee will be non-refundable if a Loan is subsequently cancelled or refunded, but will be refunded if erroneously paid by ITT ESI.

2.10 Loan Information. At or prior to the time any Loan is purchased by the CUSO, the CUSO shall obtain from the Originating Entity the following information with respect to such Loan:

(a) The name, address, e-mail address, telephone number and social security number of each Borrower under such Loan.

(b) The original principal amount and interest rate on and the terms of such Loan.

(c) The deferment provisions applicable to such Loan.

(d) A copy of the Borrower’s Loan File, including a set of fully executed Loan Documents.

(e) Confirmation that a Borrower who is a Student is a member of the Originating Entity.

(f) Confirmation that the Loan complies with the Loan Criteria.

(g) Such further instruments and information as ITT ESI or the CUSO may reasonably request.

After any Loan is purchased by the CUSO, the CUSO shall be responsible for obtaining, and shall, upon request, provide ITT ESI with copies of, all of the above referenced information about each such Loan.

2.11 Origination and Servicing Arrangements.

(a) The Originating Entity will be the named lender on the Loan Documents.

8

(b) Each Loan will be purchased under the Purchase Agreement on a servicing-released basis. The CUSO will cause the Originating Entity to transfer to the CUSO with each Loan purchased the right to service such Loan. Except as otherwise provided in this Agreement, the Servicing Agreement or the Risk Sharing Agreement, all decisions with respect to the administration, collection, enforcement, servicing and charge off of any Loan shall be made by the CUSO in accordance with the Collection and Charge Off Standards and in consultation with and under the direction of ITT ESI.

(c) The CUSO will cause the origination and documentation of Loans to be serviced by the Origination Vendor pursuant to the Origination Agreement. The Origination Vendor and the terms of the Origination Agreement shall be subject to the approval of ITT ESI. The CUSO shall regularly consult with ITT ESI regarding the selection, supervision, financial condition and performance of the Origination Vendor. ITT ESI shall have the right at any time to direct the origination of Loans and the supervision and performance of the Origination Vendor. Errors and omissions of the Origination Vendor shall not affect the obligations of either party under this Agreement.

(d) The CUSO, through the Servicer, will service the Loans in accordance with the terms of the Servicing Agreement and the Collection and Charge Off Standards. Each Servicer and the terms of its respective Servicing Agreement shall be subject to the approval of ITT ESI. The CUSO shall regularly consult with ITT ESI regarding the selection, supervision, financial condition and performance of the Servicer. ITT ESI shall have the right at any time to direct the servicing and collection of Loans and the supervision and performance of the Servicer. Errors or omissions of the Servicer shall not affect the obligations of either party under this Agreement.

(e) The CUSO shall cause the Originating Entity to assign to the CUSO all rights of the Originating Entity under the Origination Agreement, which rights may be exercised by the CUSO upon any Originating Entity Default, any uncured default by the Origination Vendor under the Origination Agreement, or any breach of the representations and warranties in this Agreement or the Purchase Agreement, as fully as if the CUSO were an original party thereto.

(f) Each Origination Agreement and Servicing Agreement shall name ITT ESI as an express third-party beneficiary of such agreement, with full power and authority to enforce the same as if it were an original party thereto, and shall further provide that such agreement may not be amended, modified, terminated or assigned without ITT ESI’s prior express written consent.

(g) Fees and expenses in connection with the origination and servicing of each Loan shall be paid by the CUSO in accordance with the applicable Origination Agreement and Servicing Agreement.

(h) ITT ESI shall have the right to require the CUSO to replace any Origination Vendor or Servicer with a substitute Origination Vendor or Servicer acceptable to ITT ESI upon not less than ninety (90) days notice, so long as no such replacement would cause the CUSO to violate the Origination Agreement or Servicing Agreement.

9

2.12 Retained Originator Interest; Marketing of Member Services.

(a) The CUSO shall ensure that the Originating Entity acquires and maintains not less than a ten percent (10%) Retained Originator Interest in each Loan in each Loan Pool. For purposes of computing such percentage, the Retained CUSO Interest shall be taken into account.

(b) Nothing in this Agreement or the Participation Agreement shall prohibit the Originating Entity or any Participant from marketing its credit union membership services to Students, faculty or staff of ITT ESI’s ITT Technical Institutes in compliance with NCUA Rules.

2.13 Originating Entity Default. Upon any Originating Entity Default or any other Event of Default by the Originating Entity under the Purchase Agreement, then:

(a) The CUSO shall terminate the Purchase Agreement and, not later than sixty (60) days after the date of the Originating Entity Default or Event of Default, enter into a Substitute Purchase Agreement with a Substitute Originating Entity acceptable to ITT ESI.

(b) If ITT ESI extends open account credit to Students as a result of any Originating Entity Default or Event of Default, then the CUSO shall cause any Substitute Originating Entity to convert such credit into Loans under the Program that comply with Section 2.1(b) of the Purchase Agreement (including Loans to Persons who are no longer Students but who were Students at the time such open account credit was extended by ITT ESI) and to sell such Loans to the CUSO in accordance with the Substitute Purchase Agreement, with the proceeds of such sales used to pay off such credit.

2.14 Collateral. The CUSO acknowledges and agrees that none of the Collateral pledged by ITT ESI under the Security Agreement shall secure any of ITT ESI’s obligations under this Agreement.

2.15 Program Documents. ITT ESI is an express third-party beneficiary of each Program Document, with full right, power and authority to enforce the same as if it were an original party thereto. No Program Document or any term or provision thereof shall be amended, modified, terminated or waived without the express written consent of ITT ESI. Each Program Document shall expressly provide for the third-party beneficiary rights of ITT ESI described in this Section 2.15, but no failure of any such Program Document to provide for such third-party beneficiary rights shall affect the enforceability of this Section 2.15.

2.16 Representations and Warranties. In addition to and not in limitation of the representations and warranties of the Originating Entity in the Purchase Agreement, each of the following representations and warranties with respect to each Loan shall be accurate in all material respects on the date the Loan is originated and the date the Loan is purchased by the CUSO.

10

(a) The Loan, the Loan Documents and the Borrower comply with the Loan Criteria.

(b) The CUSO has, and at all times will have, full right, power and authority to acquire, hold and enforce such Loan. The purchase, holding and enforcement of such Loan by the CUSO do not require the CUSO to obtain any federal, state or local governmental or regulatory approval, permit, license or consent that has not been obtained.

(c) The Borrower has not committed any default or event of default under any other Loan in a Loan Pool under the Program, nor does any event or condition exist which, with the giving of notice or the passage of time, or both, would constitute such a default or event of default.

(d) The Loan Documents executed by or on behalf of the Borrower with respect to such Loan are the legal, valid and binding obligation of the Borrower, enforceable in accordance with their terms, except as such enforcement may be limited by (i) fraudulent transfer, bankruptcy, insolvency, moratorium or other similar laws affecting the enforcement of creditors’ rights generally (except to the extent the Loans are non-dischargeable under the Bankruptcy Code), and (ii) general principles of equity (regardless of whether such enforcement is considered in a proceeding in equity or at law), and except that certain provisions in such Loan Documents may be further limited or rendered unenforceable by applicable law, but (subject to the limitations set forth in the foregoing clauses (i) and (ii)) such limitations and/or unenforceability will not render such Loan Documents invalid as a whole or substantially interfere with the CUSO’s realization of the principal benefits provided thereby. Except as set forth in the immediately preceding sentence, there was no valid offset, defense, counterclaim or right of rescission available to the Borrower with respect to any of the Loan Documents, including any such valid offset, defense, counterclaim or right based on fraud, predatory lending or lender liability in connection with the origination of such Loan, that would deny the principal benefits intended to be provided by the Loan Documents for such Loan.

(e) The Borrower under such Loan is not a debtor in any state or federal bankruptcy, insolvency or similar proceeding.

(f) The Loan, including the terms thereof, and the Loan Documents comply with all applicable federal and state laws and regulations and do not satisfy any of the conditions for predatory lending or lender liability under applicable law.

(g) Other than in connection with any Credit Facility, the CUSO has not advanced funds to, or induced, solicited or knowingly received any advance of funds from, any Person other than the Borrower.

(h) Such Loan complies with applicable NCUA Rules.

(i) There exists no default, breach, violation or event of acceleration under the Loan Documents for such Loan and no event has occurred which, with the passing of time or the giving of notice and the expiration of any grace or cure period, would constitute such a default or breach.

11

(j) Such Loan is a whole loan and not a participation interest in a Loan.

(k) The Loan Documents contain the standard provisions providing for recourse against the Borrower for damages sustained in connection with the Borrower’s fraud or material misrepresentation.

(l) There is no collateral securing such Loan.

(m) Except as provided in the Origination Agreement and the Servicing Agreement, no Person has been granted or conveyed the right to service such Loan or receive any consideration in connection therewith.

(n) The transfer of the Loan to the CUSO does not affect the accuracy of any of the representations or warranties contained herein or in the Purchase Agreement.

(o) The transfer of the Loan to the CUSO complied with all applicable laws, and all required actions and disclosures in connection with such transfer have been taken and made.

(p) The Loan Documents contain required disclosures to permit the CUSO to provide Loan information to ITT ESI and its service providers.

(q) Such Loan is a “qualified education loan” within the meaning of 26 USC 221(d)(1).

(r) The Originating Entity has full right, power and authority to originate and sell such Loan under its charter and applicable laws and regulations, the Originating Entity is authorized by its Board of Directors to originate and sell Loans pursuant to the Program Documents, and the origination and sale of such Loan have been duly approved by the Originating Entity’s officers and directors and do not conflict with any note, mortgage or other agreement to which the Originating Entity is a party or by which the Originating Entity or its assets may be bound.

(s) Such Loan is eligible for federal preemption of any state law that purports to limit or affect any of the matters described in NCUA Rule 701.21(b).

As the sole remedy for any breach of the representations and warranties in this Section 2.16 with respect to any Loan (i) ITT ESI shall have no liability under the Risk Sharing Agreement or Security Agreement with respect to such Loan (unless any such breach (A) is due to the fraud, willful misconduct or gross negligence of any ITT ESI employee, or (B) is of Section 2.16(a) and is the direct result of either an error by the Origination Vendor or the failure of the Origination Vendor to comply with any instructions of the Originating Entity, in each case in connection with the origination of such Loan) and (ii) the CUSO shall have no obligation to purchase such Loan. Without limiting the foregoing, in the event of any breach of the representations and warranties in Section 2.16(b), the CUSO shall use its commercially reasonable best efforts to obtain the required right, power and authority as quickly as possible and will purchase any Loan(s) so affected promptly after obtaining the same.

12

ARTICLE III

PROGRAM ADMINISTRATION

3.1 Program Administrator. TRG shall serve as Program Administrator during the term of the Management Agreement. The Program Administrator will have authority to administer the Program in accordance with the terms of this Agreement, the Management Agreement and the other Program Documents, including the following:

(a) Assist the parties in performing Loan analysis and projections.

(b) Assist the parties in marketing the Program and credit union membership to the Students, faculty and staff of ITT Technical Institutes.

(c) Perform Pool projections and analyses.

(d) Prepare quarterly and annual reports for the CUSO containing the financial statements referred to in Section 4.1 and deliver such reports to the parties to the Program Documents by the dates described in Section 4.1.

(e) Provide quarterly reports of Loan Pool performance to ITT ESI, the Originating Entity and the CUSO, including such information as required by ITT ESI and the Originating Entity to meet their reporting obligations under the Securities Exchange Act of 1934 and NCUA Rules, respectively.

(f) Supervise and monitor the activities of the Origination Vendor and the Servicer and promptly report to the parties any default by the Origination Vendor under the Origination Agreement and any default by the Servicer under the Servicing Agreement.

(g) Represent the Program in discussions with the NCUA and state credit union administrators.

(h) Provide the reports required under the Risk Sharing Agreement.

(i) Perform the other functions described in the Management Agreement.

3.2 Compensation.

(a) The Program Administrator shall receive such compensation as provided in the Management Agreement. All expenses of Program administration shall be paid by the CUSO.

(b) The CUSO shall reimburse ITT ESI for (i) all costs and expenses incurred by ITT ESI related to Phase II (as defined in that certain Engagement Proposal related to Phase II of the Program executed by ITT ESI and TRG on June 19, 2008 and June 20, 2008, respectively, and in that certain Engagement Proposal related to the Phase II Extension executed by ITT ESI and TRG on October 1, 2008), and (ii) fifty percent (50%) of all costs and expenses incurred by ITT ESI related to Phase I (as defined in that certain Engagement Proposal related to Phase I of the Program executed by ITT ESI and TRG on April 4, 2008). The CUSO will make such reimbursement to ITT ESI over a three-year period, in equal quarterly payments due on or before the fifteenth (15^th) day after the end of each quarter, beginning with the first quarter that the Program is effective.

13

3.3 Limitation of Liability. The Program Administrator is not a fiduciary to ITT ESI, the Originating Entity, the CUSO or the Participants, and shall have no liability to ITT ESI, the Originating Entity, the CUSO or the Participants for any Losses resulting from any errors in judgment or any act or omission in connection with the promotion, implementation, documentation or administration of the Program, unless due to the Program Administrator’s fraud, willful misconduct, gross negligence or breach of the Management Agreement. In all events, the Program Administrator shall be protected in acting upon any authorization or instruction by any party to the Program Documents. The CUSO shall defend, indemnify and hold the Program Administrator harmless from any Losses to which the Program Administrator may be subject or exposed as a result of its service as Program Administrator, unless due to the Program Administrator’s fraud, willful misconduct, gross negligence or breach of the Management Agreement.

3.4 Resignation or Removal of the Program Administrator. TRG may resign or be removed as Program Administrator as provided in the Management Agreement. Upon any resignation or removal of TRG as Program Administrator, the CUSO shall appoint a substitute program administrator acceptable to ITT ESI which agrees to perform the functions described in the Management Agreement.

ARTICLE IV

FINANCIAL STATEMENTS AND ACCESS TO INFORMATION

4.1 Financial Statements. During the Term of this Agreement, the CUSO shall, as soon as the same are available (and in any event within ninety (90) days after the end of each fiscal year), provide ITT ESI with a copy of its audited financial statements for such fiscal year, and as soon as the same are available (and in any event within forty-five (45) days after the end of each fiscal quarter) provide ITT ESI with a copy of its unaudited financial statements for such fiscal quarter.

4.2 Access to Information.

(a) The CUSO shall cause the Originating Entity to provide ITT ESI and the CUSO with reasonable access to the Originating Entity’s knowledgeable financial, accounting, origination and servicing officers for the purpose of allowing ITT ESI and the CUSO to evaluate prospective or existing Loans, the Originating Entity’s Loan origination practices, any developments affecting the Originating Entity, and the Originating Entity’s financial condition and performance of the Purchase Agreement.

14

(b) The CUSO shall grant ITT ESI reasonable access to the CUSO’s officers for the purpose of answering questions regarding the sale of Participation Interests and the administration of the Program.

(c) The CUSO shall provide ITT ESI with all Loan level information and documentation within its possession or control.

4.3 Inspection and Audit. ITT ESI and its representatives shall have the right to inspect, audit and test the books, records, procedures and internal controls of the CUSO and/or the Program Administrator for any corporate purpose. The CUSO and Program Administrator shall cooperate with any such inspection, audit or testing. Any such inspection, audit or testing shall be at ITT ESI’s expense, unless (a) such inspection, audit or testing was caused by the fraud, willful misconduct or negligence of the CUSO or the Program Administrator, the CUSO’s breach of any of the Program Documents, or the Program Administrator’s breach of the Management Agreement, or (b) such inspection, audit or testing reveals that the records or reporting with respect to any Loan Pool reflect material inaccuracies with respect to Loans, the Net Disbursements on which aggregate in excess of ten percent (10%) of the aggregate Net Disbursements on all Loans in such Loan Pool, in which cases the CUSO or the Program Administrator, as applicable, shall reimburse ITT ESI for its out-of-pocket costs of such inspection, audit or testing, including without limitation the fees and expenses of any third party auditor. The Program Administrator shall execute a joinder to this Agreement obligating it to comply with this Section 4.3.

ARTICLE V

TERM AND TERMINATION

5.1 Term. This Agreement shall be for an Initial Term commencing on the Effective Date and ending December 31, 2011 and shall automatically renew for successive Renewal Terms of one (1) year each, unless either party provides written notice of non-renewal to the other not less than one (1) year prior to the expiration of the Initial Term or any such Renewal Term. The CUSO’s Estimated Aggregate Funding Commitment during any Renewal Term shall be determined in accordance with Section 2.9(l).

5.2 Events of Default and Remedies. If an Event of Default occurs, then, and in every such event, the non-defaulting party may do one or both of the following (without presentment, protest or notice of protest, all of which are expressly waived by the defaulting party):

(a) Terminate this Agreement immediately upon written notice to the defaulting party; provided, however, that termination by the non-defaulting party will not affect the validity of any Loans originated prior to such termination, and the existing obligations, representations and warranties of the terminating party and the defaulting party regarding such Loans shall remain in effect.

(b) Exercise all other rights legally available to it (other than recovery of incidental, consequential or punitive damages).

15

As used herein, “Event of Default” shall mean any of the following:

(1) If a party materially fails to perform any of its covenants in this Agreement or any other Program Document (other than the Management Agreement) and such failure is not cured within thirty (30) days after receipt of written notice from the non-defaulting party specifying the nature of such failure; provided, however, that no failure of ITT ESI to provide or advance funds under a Credit Facility shall be deemed a breach of this Agreement;

(2) The filing by a party of a petition in bankruptcy or a proposed or actual assignment for the benefit of creditors or similar proceeding by such party;

(3) The filing against a party of a petition in bankruptcy or the appointment for such party or any of its assets of a trustee, receiver, executor, liquidator or conservator or other judicial or administrative representative, or any similar proceeding, which is not vacated, dismissed or stayed on appeal within sixty (60) days; or

(4) With respect to the CUSO, in ITT ESI’s sole discretion, (A) any Event of Default by the CUSO under any Credit Facility provided by ITT ESI, (B) any failure by the CUSO to cause the Originating Entity to originate at least seventy-five percent (75%) of the Estimated Aggregate Funding Commitment in any Funding Year, or (C) any material failure by the CUSO to purchase Loans due to any termination by a Participant of its respective Subscription Agreement because of a change in existing law or regulation as provided therein. ITT ESI’s rights under clauses (B) and (C) above shall not be affected by any election by ITT ESI to advance or not advance funds under any Credit Facility.

5.3 Termination.

(a) In addition to and not in limitation of the provisions of Section 5.2, this Agreement shall immediately terminate upon the occurrence of any of the following:

(i) Upon the mutual written agreement of ITT ESI and the CUSO.

(ii) If the Program or any material aspect thereof is determined by ITT ESI or the CUSO, based upon an opinion of counsel, to be in violation of the Federal Credit Union Act, any NCUA Rule or any other federal law or regulation, or if the Loans do not qualify for the federal preemption provided in NCUA Rule 701.21(b).

(iii) If ITT ESI sells or discontinues its educational business.

(b) Without limitation of the provisions of Section 5.3(a), if either party provides a written request not later than one (1) year prior to the beginning of any Renewal Term that a new Estimated Aggregate Funding Commitment be adopted for such Renewal Term and the parties are unable to agree on a new Estimated Aggregate Funding Commitment for such Renewal Term within two hundred seventy (270) days prior to the beginning of such Renewal Term, the party making such request may terminate this Agreement effective at the end of the then current Term by giving written notice to the other party not later than two hundred sixty (260) days prior to the beginning of such Renewal Term.

16

(c) The termination or non-renewal of this Agreement in accordance with its terms shall automatically terminate all other Program Documents.

(d) A termination or non-renewal of this Agreement shall not affect the validity of any Loans originated or any obligations of the CUSO arising prior to such termination or non-renewal, and the existing obligations, representations and warranties of the parties regarding such Loans and any such obligations of the CUSO shall remain in effect.

ARTICLE VI

MISCELLANEOUS

6.1 Assignment of Rights; Delegation of Duties. This Agreement may not be assigned or delegated by either party without the written consent of the other party. Likewise, no Program Document may be assigned, nor may any obligation thereunder be delegated, without ITT ESI’s prior written consent. Any other attempt to delegate or assign any obligations arising under this Agreement shall be null and void. All obligations hereunder are binding on any successors-in-interest of a party. Notwithstanding the foregoing, (a) this Agreement and all rights and obligations hereunder may be assigned by either party to any Person acquiring all or substantially all of such party’s assets and business, whether by sale, merger, consolidation or similar transaction, and (b) ITT ESI may assign or delegate any of its rights under this Agreement to any direct or indirect subsidiary or Affiliate of ITT ESI. The party making any assignment permitted by clause (a) or (b) above shall provide prior written notice of such assignment to the other party.

6.2 Notices. Notices, requests, demands or other instruments that may be or are required or permitted to be given to either party hereto must be in writing and shall be deemed to have been properly given and effective when:

(a) Delivered personally to an officer of the party to which such notice is to be given; or

(b) Actually received or refused by a party when mailed by registered or certified mail or delivered by an overnight delivery service that requires a signature upon receipt; or

(c) Sent by electronic mail or facsimile if delivery is confirmed and a copy is mailed to the recipient as set forth above.

All such notices will be addressed as set forth on the signature page hereto. Either party may change the address to which notices to such party are to be sent by notice to the other party given as aforesaid.

17

6.3 Severability Clause. Any part, provision, representation, warranty or covenant of this Agreement that is prohibited or is held to be void or unenforceable shall be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof. Any part, provision, representation, warranty or covenant of this Agreement that is prohibited or is held to be void or unenforceable in any particular jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any particular jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction.

6.4 Counterparts. This Agreement may be executed in counterparts, each of which shall for all purposes be deemed to be an original and both of which shall together constitute but one and the same instrument.

6.5 GOVERNING LAW; CONSENT TO JURISDICTION. THIS AGREEMENT WILL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF INDIANA, APPLICABLE TO AGREEMENTS NEGOTIATED, MADE AND TO BE PERFORMED ENTIRELY IN SAID STATE. TO THE FULLEST EXTENT PERMITTED UNDER APPLICABLE LAW, THE CUSO HEREBY IRREVOCABLY (A) SUBMITS TO THE JURISDICTION OF ANY INDIANA STATE AND FEDERAL COURTS SITTING IN INDIANAPOLIS, INDIANA WITH RESPECT TO MATTERS ARISING OUT OF OR RELATING TO THIS AGREEMENT; (B) AGREES THAT ALL CLAIMS WITH RESPECT TO SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN SUCH INDIANA STATE OR FEDERAL COURTS; (C) WAIVES THE DEFENSE OF AN INCONVENIENT FORUM; AND (D) AGREES THAT A FINAL JUDGMENT IN ANY SUCH ACTION OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY LAW.

6.6 Successors and Assigns. This Agreement shall bind and inure to the benefit of and be enforceable by the parties and their respective successors and permitted assigns.

6.7 Changes, Waivers, Modifications, Discharges and Terminations. Neither this Agreement nor any term or provision hereof may be changed, waived, modified, discharged or terminated except by a writing signed by a duly authorized officer of the party against which enforcement of such change, waiver, modification, discharge or termination is sought to be enforced.

6.8 Schedules and Exhibits. The Schedules and Exhibits to this Agreement are hereby incorporated into and made a part hereof and are an integral part of this Agreement.

6.9 Further Assurances. Each party agrees to execute and deliver to the other such reasonable and appropriate additional documents, instruments or agreements as may be necessary or appropriate to effectuate the purposes and to carry out the terms of this Agreement.

6.10 No Partnership, Joint Venture or Agency. This Agreement does not create any sort of partnership or joint venture between the parties. Neither party shall have the authority to act as agent for the other party or to bind the other party to any obligation (except as expressly provided in this Agreement or the other Program Documents) without such party’s written consent.

18

6.11 Entire Agreement. Together with the other Program Documents, this constitutes the entire agreement of the parties with respect to the subject matter hereof, and may not be modified or amended without the written consent of ITT ESI and the CUSO.

6.12 Construction of Agreement. The captions and headings of the sections and paragraphs of this Agreement are for convenience only and are not to be used to interpret or define the provisions of this Agreement. This Agreement has been drafted by arm’s length negotiation of the parties hereto and should not be interpreted against either party as the primary drafter of this Agreement.

6.13 Attorneys’ Fees and Costs. If any lawsuit or proceeding is brought by either party to enforce the terms of this Agreement, the unsuccessful party shall pay the prevailing party’s costs and reasonable attorneys’ fees incurred in bringing or defending such action.

6.14 Specific Performance. The parties recognize that irreparable injury will result from a breach of any provision of this Agreement and that money damages will be inadequate to fully remedy the injury. Accordingly, in the event of a breach or threatened breach of one or more of the provisions of this Agreement, the party who may be injured (in addition to any other remedies which may be available to that party) shall be entitled to one or more preliminary or permanent orders (a) restraining and enjoining any act which would constitute a breach, or (b) compelling the performance of any obligation which, if not performed, would constitute a breach.

6.15 No Incidental or Consequential Damages. Neither party shall be responsible for any special, indirect, incidental or consequential damages arising from any breach of this Agreement or any Program Document.

6.16 Confidential Information. Each of the parties agrees that it will keep all Confidential Information as confidential and will not, without each other party’s prior written consent, disclose any portion of the Confidential Information to anyone other than to its representatives. Neither party will (and will cause its representatives not to) use any of the Confidential Information for any purpose other than in connection with its responsibilities under this Agreement and the Program. Each party will inform its representatives of the confidential nature of the Confidential Information and direct each representatives to treat the Confidential Information as confidential.

Nothing in this Agreement will be deemed to prevent either party from disclosing any Confidential Information to the extent required by any applicable law, regulation or court order (including applicable securities or credit union laws), but, other than any information disclosed by ITT ESI under applicable securities laws and regulations (a) the receiving party must (unless prohibited by law, regulation or court order) notify the disclosing party of the imminent disclosure as soon as is practicable and in all events with sufficient prior notice to allow the disclosing party to seek a protective order or otherwise to object, and (b) the receiving party will use commercially reasonable best efforts to minimize or prevent such disclosure to the maximum extent allowed under applicable law, regulation or court order. Confidential Information does not include any such information that: (i) was or becomes generally available to the public other than as a result of a disclosure by the receiving party or its representatives; (ii) was within the receiving party’s possession prior to being furnished by or on behalf of the disclosing party; (iii) is furnished to the receiving party by a third party who has represented to the receiving party that it is not under an obligation of confidentiality to the disclosing party; or (iv) is independently developed by the receiving party without the use of any Confidential Information.

19

Neither party may use or disclose to any third party (other than its employees and/or representatives) any Customer Information except solely to carry out the purposes under this Agreement for which such Customer Information was disclosed.

Promptly after either party gains knowledge of any unauthorized use or disclosure of any Confidential Information or Customer Information, such party shall promptly notify the other party hereto in writing of such use or disclosure so that, to the extent then possible, mitigating actions can be taken.

Each party expressly consents and agrees that, notwithstanding anything to the contrary in this Section 6.16, the other party may, in addition to any other remedies available to such other party, obtain injunctive relief in appropriate cases (including a temporary restraining order, preliminary injunction or specific performance) to terminate or prevent the continuation of any (or prevent any threatened) default or breach under this Section 6.16 without having to show any actual damage and without having to post any bond. It is specifically agreed that each party may incur incalculable and irreparable damage from any violation by the other party of any of this Section 6.16 and that such party will not have an adequate remedy at law for such a violation and the parties are entitled to injunctive relief for any such actual or threatened violation.

20

IN WITNESS WHEREOF, the parties have caused their names to be signed hereto by their respective officers thereunto duly authorized on the date first above written.

ITT EDUCATIONAL SERVICES, INC.
By:	/s/ Kevin M. Modany
Name: Title: Address:	Kevin M. Modany Chairman, CEO and President 13000 North Meridian Street Carmel, Indiana 46032 Attn: Chief Financial Officer Email: dfitzpatrick@ittesi.com Fax: (317) 706-9254

STUDENT CU CONNECT CUSO, LLC
By:	/s/ Tony Ferris
Name: Title: Address:	Tony Ferris Partner, Rochdale 8700 Indian Creek Parkway Suite 120 Overland Park, Kansas 66210 Email: tferris@rochdalegroup.com Fax: (913) 322-3770

21

JOINDER

The undersigned hereby joins this Agreement for the purpose of accepting and agreeing to be bound by the provisions of Section 4.3 hereof.

THE ROCHDALE GROUP, INC.
By:	/s/ Tony Ferris
Name: Title: Address:	Tony Ferris Partner, Rochdale 8700 Indian Creek Parkway Suite 120 Overland Park, KS 55216 Email: tferris@rochdalegroup.com Fax: (913) 322-3770

22

SCHEDULE A

DEFINITIONS

23

SCHEDULE A

DEFINITIONS

A. Definitions. The following terms shall have the following respective meanings:

“2010 Funding Year Target” means the sum of (i) the Base Funding Year Target plus (ii) the amount (if any) by which the Base Funding Year Target exceeded the aggregate dollar amount of funds deposited in the Loan Funding Account by the CUSO (excluding any amounts deposited in respect of refunds of Loans) in Funding Year 2009.

“2011 Funding Year Target” means the sum of (i) the Base Funding Year Target plus (ii) the amount (if any) by which the 2010 Funding Year Target exceeded the actual dollar amount of funds deposited in the Loan Funding Account by the CUSO (excluding any amounts deposited in respect of refunds of Loans) in Funding Year 2010.

“Actual Funding Commitment” means the amount deposited by the CUSO into the Loan Funding Account with respect to any Funding Period in order to meet actual Loan demand.

“Actual Participation Commitment” means, with respect to each Subscriber, the amount obtained by multiplying such Subscriber’s Participation Commitment Percentage by the estimated Loan volume for a given Funding Period, less the Subscriber’s share (based on Participation Commitment Percentage) of any previously unutilized amounts and any amounts permitted to be retained from refunds.

“Actual Renewal Participation Commitment” means, with respect to a Subscriber, a revised Estimated Aggregate Participation Commitment (as defined in the applicable Subscription Agreement) for a Renewal Term based on estimated Loan volume.

“Administrative Fee” has the meaning set forth in the Participation Agreement.

“Affiliate” means, with respect to any Person, any other Person controlling or controlled by or under common control with such Person. For purposes of this definition, “control” when used with respect to any specified Person means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise, and the terms “controlling” and “controlled” have meanings correlative to the foregoing.

“Annual Commitment” means, with respect to each Participant, the portion of the Estimated Aggregate Participation Commitment (as defined in the applicable Subscription Agreement) payable in a Funding Year covered by the Participation Agreement.

“Automatic Renewal” means the automatic renewal of a Subscriber’s obligations under the applicable Subscription Agreement for one or more successive Renewal Terms.

“Available Funded Commitment” has the meaning set forth in the Participation Agreement.

“Available Participation Interest” has the meaning set forth in the Participation Agreement.

“Base Funding Year Target” means one-third of the Estimated Aggregate Funding Commitment for Funding Years 2009, 2010 and 2011.

“Borrower” means a Student, or any guarantor or co-signer of a Student, obligated under each Loan.

“Business Day” means a day other than Saturday, Sunday, a United States national holiday or other day on which banks in the State of Indiana are permitted or required by law to close.

“Charged Off” means a Loan on which there have not been any payments made for at least 180 days, if any payments had been due during such period.

“Claim Package” means, with respect to each ITT ESI Risk Loan (if any) in a Loan Pool: (a) Loan-level information, including, without limitation, both a servicing and a payment transaction history, for that ITT ESI Risk Loan; and (b) an invoice summarizing the Loan-level remittance data for such ITT ESI Risk Loan, including loan number, name, social security number, disbursement date, outstanding loan amount, outstanding accrued interest, interest rate, aggregate monthly payment(s) amount past due, and, if requested by ITT ESI, the ten (10) day pay-off amount for such ITT ESI Risk Loan.

“Collateral” has the meaning set forth in the Security Agreement.

“Collateralization Percentage” means, with respect to the Loan Pool for Funding Year 2009, fifteen percent (15%), and, with respect to each Loan Pool other than that for Funding Year 2009, ten percent (10%), in each case, unless adjusted as provided in Section 6.3 of the Risk Sharing Agreement.

“Collection and Charge Off Standards” mean the Loan servicing criteria mutually approved by the parties to the Program Agreement.

“Commitment Account” means the account maintained by the CUSO into which Participants will deposit funds in respect of Participation Commitments and from which the CUSO will withdraw funds to deposit into the Loan Funding Account for the purchase of Loans. The funds in the Commitment Account shall not be commingled with any other funds of the CUSO.

“Commitment Share” means, with respect to each Participant in relation to each Loan Pool and for any date of determination, a fraction (expressed as a percentage), (i) the numerator of which equals the amount of the Available Funded Commitment then funded by such Participant for such Loan Pool, and (ii) the denominator of which equals the aggregate Available Funded Commitment.

“Commitments” has the meaning set forth in the Participation Agreement.

2

“Confidential Information” means (a) information disclosed to a party with respect to any Program Document; (b) all information related to the structure of and the terms of any Program Document, including items set forth in the Exhibits thereto; and (c) all information related to the other parties’ operations, finances, Borrowers, customers, and Students, and any analyses, concepts, ideas, compilations, studies, materials, memoranda, notes and data pertaining thereto and/or derived from the any Program Document or the Program.

“Credit Facility” means any debt financing obtained by the CUSO from ITT ESI or other lender(s) to fund the CUSO’s operation of the Program and the Retained CUSO Interest, if any, in the Loans in each Loan Pool.

“Credit Facility Documents” means any loan agreement, security agreement, promissory note, borrowing base certificate, and other documents entered into by the CUSO in connection with a Credit Facility, as amended, modified, restated or replaced from time to time.

“Credit Lender” means the financial institution(s) or other Person(s) providing the Credit Facility to the CUSO.

“Credit Unions” means, collectively, the network of participating credit unions in the Program, which includes the Originating Entity.

“CUSO” means Student CU Connect CUSO, LLC, a Delaware limited liability company operating as a credit union service organization.

“Customer Information” means non-public consumer information that is disclosed to a party by another party or any Credit Union.

“Cut-off Date” means the date that is five (5) Business Days prior to any Payment Date.

“Default” means, with respect to any Loan, any event that constitutes or, with the giving of notice or passage of time or both, would constitute a default or an event of default under the related Loan Documents.

“Deposit Account Control Agreement” means a Deposit Account Control Agreement among ITT ESI, the CUSO and a Designated Financial Institution substantially in the form of Exhibit 1.1(b) to the Security Agreement.

“Designated Financial Institution” means a financial institution selected by ITT ESI and meeting the criteria set forth in Exhibit A-1 hereto.

“Disassociated Participant” has the meaning set forth in the Participation Agreement.

“Distribution Account” means the segregated account maintained by the CUSO in which Monthly Collections will be deposited and from which the CUSO will withdraw funds to make distributions to itself and the Participants as set forth in Sections 7(a)-(b) of the Participation Agreement.

“Effective Date” means February 20, 2009.

3

“Estimated Aggregate Funding Commitment” means an amount equal to the sum of all Estimated Aggregate Participation Commitments. When words such as “for that Funding Year” and “for that Funding Period” are used after the term “Estimated Aggregate Funding Commitment” in any Program Document, it means the maximum portion of the Estimated Aggregate Funding Commitment that is payable in the applicable Funding Year or Funding Period, respectively, as determined in accordance with Section 2.9(c) and Section 2.9(d), respectively, of the Program Agreement.

“Exit Transaction” has the meaning set forth in the Participation Agreement.

“First Disbursement Date” means, with respect to each Funding Period, the date of the first Loan disbursement by the Originating Entity to ITT ESI in such Funding Period, as mutually determined by ITT ESI and the CUSO.

“First Loss Percentage” means thirty-five percent (35%) or such other percentage as ITT ESI and the CUSO shall mutually agree upon as provided in Section 5.1 of the Risk Sharing Agreement.

“First Loss Risk” means, with respect to any Loan Pool, the product produced by multiplying (x) the applicable First Loss Percentage times (y) the aggregate Net Disbursements on all Loans in such Loan Pool.

“Funding Periods” means periods during a Funding Year determined from time to time by ITT ESI.

“Funding Year” means the calendar year in which a Loan is disbursed. For clarification, Funding Year 2009 is the period commencing on the Effective Date and terminating on December 31, 2009, and Funding Years 2010 and 2011 are the related calendar years.

“GAAP” means generally accepted accounting principles in the United States, or such other accounting principles as prescribed for public companies from time to time.

“Initial Capital Contribution” means a Credit Union’s initial Capital Contribution (as defined in the Operating Agreement) in exchange for its Membership Interest.

“Initial Term” means the period from the Effective Date until December 31, 2011.

“ITT ESI” means ITT Educational Services, Inc., a Delaware corporation.

“ITT ESI Risk Loans” means, collectively, all Loans (representing all unpaid (i) Net Disbursements and (ii) accrued interest) in a Loan Pool in excess of the First Loss Risk for such Loan Pool.

“ITT ESI Risk Payment” means, as to a Loan Pool, once the First Loss Risk for such Loan Pool has been exceeded, payments due and unpaid as of the end of the applicable month on all Charged Off ITT ESI Risk Loans in such Loan Pool that are not Charged Off First Loss Risk Loans.

4

“Letter of Credit” means an irrevocable standby letter of credit, securing payment of all or a portion of the Obligations (as defined in the Security Agreement) with respect to a Loan Pool, issued by a Designated Financial Institution.

“Lien” means any statutory or common law consensual or non-consensual mortgage, pledge, security interest, participation interest, encumbrance, lien, right of setoff, claim or charge of any kind, including, without limitation, any conditional sale or other title retention transaction, and any secured transaction under the Uniform Commercial Code of any applicable jurisdiction.

“Loan Criteria” means the criteria of the Originating Entity, of which Exhibit A-2 hereto is a copy, which may not be amended or supplemented without the prior written approval of ITT ESI and the CUSO.

“Loan Documents” means, with respect to each Loan, the loan application, loan agreement, promissory note, co-signer documentation (if applicable), and other documents executed and delivered by a Borrower, as amended, modified, restated or replaced from time to time.

“Loan File” means the credit report, underwriting analysis, loan approval, confirmation of credit union membership, Loan Documents, payment history, and all other documentation of the Originating Entity or the CUSO with respect to any Loan.

“Loan Funding Account” means the account designated by the Originating Entity into which the CUSO will deposit the Purchase Price for Loans to be disbursed in each Funding Period and from which the Originating Entity will disburse the Loan proceeds to ITT ESI.

“Loan Pool” means all Loans disbursed during a Funding Year.

“Loan Pool Collateral” means as to each Loan Pool, the Collateral therefor to be determined, established and adjusted pursuant to Article VI of the Risk Sharing Agreement.

“Loan Proceeds” means, with respect to each Loan, all payments of principal, interest, loan fees, late fees, and other amounts received by the CUSO or the Servicer(s) in connection with such Loan.

“Loans” means loans to Students originated by the Originating Entity in accordance with the Loan Criteria pursuant to the Purchase Agreement.

“Losses” means, with respect to any indemnity or limitation of liability in any Program Document, losses, costs, claims, damages, demands, expenses, liabilities, causes of action, investigation expenses, attorneys’ fees and expenses and amounts paid in settlement; provided, however, that no settlement shall be made without the written consent of the party suffering the Loss, unless such settlement provides a full release of such party without the payment of any funds by such party. “Losses” excludes, however, incidental, consequential, indirect, punitive or special damages.

5

“Management Agreement” means the Management Services Agreement, dated as of the Effective Date, between the Program Administrator and the CUSO, as amended, modified, restated or replaced from time to time.

“Mature Loans” means Charged Off Loans on which an amount equal to at least ten (10) monthly payments have been made, whether by the Borrower, ITT ESI under Section 3.4 of the Risk Sharing Agreement, or otherwise.

“Membership Interest” means a Credit Union’s membership interest in the CUSO under the Operating Agreement and such Credit Union’s Subscription Agreement.

“Monthly Collections” has the meaning set forth in the Participation Agreement.

“Monthly Report” means a written report concerning a Loan Pool, as of the end of the month that is the subject of such Monthly Report, containing the following information: (i) the aggregate Net Disbursements on all Loans originally in the applicable Loan Pool; (ii) the amount of the First Loss Risk for such Loan Pool; (iii) the aggregate current principal balances of all Loans in such Loan Pool; (iv) the aggregate amount that has been Charged Off on all Loans in such Loan Pool; (v) the aggregate current principal balances of all Loans in such Loan Pool, if any, that are the subject of the First Loss Risk for such Loan Pool and have not yet been subjected to Charge Off; (vi) the aggregate amount of the current principal balances of all ITT ESI Risk Loans in such Loan Pool; (vii) if the First Loss Risk has been exceeded, the aggregate ITT ESI Risk Payment; (viii) the aggregate current outstanding balance plus accrued unpaid interest of each Mature Loan reported pursuant to clause (vii) hereof; and (ix) the aggregate amount of all payments received during such month in respect of all Charged Off Loans.

“NCUA” means the National Credit Union Administration or any successor federal credit union regulatory agency.

“NCUA Rules” means the rules and regulations of the NCUA.

“Net Disbursement” means, as to any Loan, the total original sum disbursed to ITT ESI as payment of tuition and other charges, plus all origination and other loan fees, net of any refund or return thereof paid by ITT ESI within sixty (60) days after the disbursement date thereof. The amount of the Net Disbursement on a Loan shall not be reduced for any principal payments made on such Loan, whether by the Borrower, ITT ESI or otherwise (excepting only refunds as aforesaid), or increased for any capitalized interest charges.

“Offer Price” has the meaning set forth in the Participation Agreement.

“Operating Agreement” means the Operating Agreement of the CUSO, as amended, modified, restated or replaced from time to time.

“Originating Entity” means the federal credit union that will originate Loans, sell such Loans to the CUSO, and maintain a Retained Originator Interest in the Loans in each Loan Pool not less than that percentage from time to time required by NCUA Rules or other applicable law.

6

“Originating Entity Default” shall be deemed to exist if (i) the Originating Entity withdraws from the Program or is expelled from the CUSO; (ii) the Originating Entity fails for any reason to originate any Loan which complies with the Loan Criteria and does not cure such failure within fifteen (15) days after receipt of written notice from the CUSO; (iii) an Event of Default by the Originating Entity exists under the Purchase Agreement; (iv) the Originating Entity ceases doing business or becomes insolvent, or the NCUA becomes liquidator of the assets of the Originating Entity in the event of insolvency; (v) the Originating Entity is no longer able to serve as Originating Entity or originate Loans under the Program; (vi) the Originating Entity becomes a Disassociated Participant; or (vii) the Originating Entity fails at any time to fund or maintain the Retained Originator Interest.

“Origination Agreement” means any agreement entered into between the Originating Entity and the Origination Vendor, with the prior approval of ITT ESI, in connection with which the Originating Entity will engage the Origination Vendor to perform origination and documentation servicing for the Loans.

“Origination Vendor” means any Person performing Loan origination and documentation servicing under the Origination Agreement.

“Participant Schedule” has the meaning set forth in the Participation Agreement.

“Participants” mean the Credit Unions that acquire Participation Interests in the Loans in any Loan Pool, including without limitation the Originating Entity.

“Participation Agreement” means the Participation Agreement entered into between the CUSO and the Participants, as amended, modified, restated or replaced from time to time.

“Participation Commitment Percentage” means, with respect to a Participant, the percentage such Participant’s Estimated Aggregate Participation Commitment bears to the total of all Participants’ Estimated Aggregate Participation Commitments.

“Participation Commitments” means collectively, a Subscriber’s Estimated Aggregate Participation Commitment (as defined in the applicable Subscription Agreement) and Actual Participation Commitments.

“Participation Interest” means, with respect to each Participant, its beneficial ownership interest in each Loan and the related Loan Documents, including such Participant’s right to receive its share of Loan Proceeds on each Payment Date.

“Participation Pledgee” has the meaning set forth in the Participation Agreement.

“Participation Purchase Notice” has the meaning set forth in the Participation Agreement.

“Payment Date” means the 25th day of each month or, if such day is not a Business Day, the following Business Day.

7

“Percentage Interest” means, with respect to a Member (as defined in the Operating Agreement), the percentage such Member’s Membership Interest bears to the total outstanding Membership Interests.

“Permitted Liens” means (a) Liens of the CUSO, (b) Liens for taxes not delinquent or for taxes being diligently contested in good faith by ITT ESI by appropriate proceedings, (c) Liens arising in the ordinary course of business with respect to obligations which are not due or which are being diligently contested in good faith by ITT ESI by appropriate proceedings, provided such Liens do not, in the aggregate, materially detract from the value of the Collateral, and (d) Liens specifically consented to in writing by the CUSO.

“Person” shall mean any natural person, corporation, association, limited liability company, syndicate, partnership, joint venture, trust, government or agency and department thereof, or any other entity of every kind.

“Pledge” has the meaning set forth in the Participation Agreement.

“Pledging Participant” has the meaning set forth in the Participation Agreement.

“Pro Rata Share” means, with respect to each Participant and the CUSO in relation to each Loan Pool and for any date of determination, a fraction (expressed as a percentage), (i) the numerator of which equals the aggregate principal balance of its Participation Interests or Retained CUSO Interest, as the case may be, in the Loans in such Loan Pool, and (ii) the denominator of which equals the aggregate principal balance of all Participation Interests and the Retained CUSO Interest in the Loans in such Loan Pool.

“Program” means the national financing program established by the CUSO to provide private student loans to Students in accordance with the Program Agreement.

“Program Administrator” means the Person designated from time to time as the “Program Administrator” under the Program Agreement. The initial Program Administrator is TRG.

“Program Agreement” means the Financing Program Agreement, dated as of the Effective Date, between ITT ESI and the CUSO, as amended, modified, restated or replaced from time to time.

“Program Documents” means the Program Agreement, the Participation Agreement, the Subscription Agreements, the Purchase Agreement, the Servicing Agreement(s), the Origination Agreement, the Risk Sharing Agreement, the Security Agreement, the Operating Agreement, the Management Agreement, the Credit Facility Documents (if ITT ESI is Credit Lender), and any other documents or instruments entered into in connection with the Program, and any amendment, modification, restatement or replacement thereof.

“Projected Renewal Participation Commitment” means, with respect to a Subscriber, the sum of the Participation Commitments paid by or credited to such Subscriber for the four (4) Funding Periods immediately preceding a Renewal Term.

8

“Purchase Agreement” means the Loan Purchase and Sale Agreement, dated as of the Effective Date, entered into by the Originating Entity and the CUSO, as amended, supplemented, modified, restated or replaced from time to time.

“Purchase Option Price” has the meaning set forth in the Participation Agreement.

“Purchase Price” means the principal amount of a Loan purchased by the CUSO, excluding origination fees and expenses.

“Quarterly Report” has the meaning set forth in the Participation Agreement.

“Redirection Notice” has the meaning set forth in the Participation Agreement.

“Renewal Term” means any one (1) year period after the Initial Term in which a Program Document is renewed.

“representatives” means, with respect to a party to the applicable Program Document, employees of such party and such party’s agents, representatives and advisors, including without limitation, attorneys, accountants, and financial advisors.

“Required Information” means each Claim Package and related Monthly Report.

“Retained CUSO Interest” means, with respect to each Loan in a Loan Pool, at any time, the portion thereof that is not then subject to either the Retained Originator Interest or Participation Interests held by Participants.

“Retained Originator Interest” means, with respect to each Loan in a Loan Pool, the Originating Entity’s 10% Participation Interest in such Loan. Any interest of the Participants (including the Originating Entity) in any such Loan exceeding the 10% Retained Originator Interest is a regular Participation Interest therein.

“Risk Sharing Agreement” means the Risk Sharing Agreement, dated as of the Effective Date, between ITT ESI and the CUSO, as amended, supplemented, modified, restated or replaced from time to time.

“SEC” means the United States Securities and Exchange Commission.

“Securities Account Control Agreement” means an agreement among ITT ESI, the CUSO and a securities intermediary substantially in the form of Exhibit 1.1(f) of the Security Agreement.

“Security Agreement” means the Security Agreement, dated as of the Effective Date, by ITT ESI in favor of the CUSO.

“Security Documents” means the Security Agreement and any and all other security agreements, assignments, subordination agreements, pledge or hypothecation agreements, instruments, letters of credit, letter-of-credit agreements and documents that are (i) now and/or hereafter existing between the CUSO and ITT ESI, and (ii) that secure any of the Obligations (as defined in the Security Agreement).

9

“Servicer” means the Person obligated pursuant to the Servicing Agreement to, among other things, collect, monitor and report Loan payments, handle late payments and other delinquencies, and remit payments.

“Servicing Agreement” means the Servicing Agreement dated as of the Effective Date between the CUSO and the Servicer, as amended, supplemented, modified, or replaced from time to time.

“Servicing Fee” means all fees payable to Servicer or Origination Vendor for performing their respective obligations under the Servicing Agreement or the Origination Agreement.

“Student” means a student enrolled at one of ITT ESI’s ITT Technical Institutes.

“Subscriber” means each Credit Union that is a party to a Subscription Agreement.

“Subscriber 2010 Funding Year Target” means, with respect to each Subscriber, the sum of the Subscriber Base Funding Year Target plus the amount (if any) by which the Subscriber Base Funding Year Target exceeded the actual amount that was paid by such Subscriber in Funding Year 2009.

“Subscriber Base Funding Year Target” means, with respect to each Subscriber, one-third of such Subscriber’s Estimated Aggregate Participation Commitment (as defined in the applicable Subscription Agreement) for Funding Years 2009, 2010 and 2011.

“Subscriber Contact” means, with respect to each Subscriber, such Subscriber’s authorized representative designated in such Subscriber’s Subscription Agreement.

“Subscriber Shortfall” means, with respect to a Subscriber, that the payment of the entire Actual Participation Commitment by such Subscriber for any Funding Period would exceed twenty-five percent (25%) of the maximum portion of the Estimated Aggregate Participation Commitment for the applicable Funding Year.

“Subscriber Shortfall Period” means a Funding Period in which a Subscriber Shortfall occurs or is to occur.

“Subscription Agreement” means each Subscription and Commitment Agreement between the CUSO and a Participant with respect to the Program, as amended, modified, restated or replaced from time to time.

“Substitute Member” has the meaning set forth in the Operating Agreement.

“Substitute Originating Entity” means a substitute federal credit union or group of federal credit unions, in either case acceptable to ITT ESI, designated by the CUSO to serve as the Originating Entity.

10

“Substitute Purchase Agreement” means a purchase agreement with a Substitute Originating Entity on the same or substantially similar terms as the Purchase Agreement or otherwise approved by the Substitute Originating Entity, the CUSO, and ITT ESI.

“Term” means the Initial Term and any Renewal Term(s).

“TRG” means The Rochdale Group, Inc., a Kansas corporation.

B. Certain Definitions to be Disregarded. Terms defined in this Schedule and not used or capitalized in the Agreement to which this Schedule is attached shall be disregarded for all purposes in connection with such Agreement (except and to the extent such terms are used in another Program Document referred to in the Agreement to which this Schedule is attached).

11

EXHIBIT A-1

Designated Financial Institutions

A Designated Financial Institution shall at all times be a banking corporation or national banking association organized and doing business under the laws of the United States of America or any state thereof or of the District of Columbia and authorized under such laws to exercise corporate trust powers, having a combined capital and surplus of at least Ten Billion U.S. dollars ($10,000,000,000) and subject to supervision or examination by federal, state, or District of Columbia authority. If such corporation or national banking association publishes reports of condition at least annually, pursuant to law or to the requirements of the aforesaid supervising or examining authority, then for the purposes hereof, the combined capital and surplus of such corporation or national banking association shall be deemed to be its combined capital and surplus as set forth in its most recent records of condition so published.

ITT ESI may not, nor may any entity directly or indirectly controlling, controlled by, or under common control with ITT ESI, be a Designated Financial Institution, notwithstanding that such corporation or national banking association shall be otherwise eligible and qualified hereunder.

EXHIBIT A-2

Loan Criteria

Student CU Connect Private Student Loan Program Criteria

Program Borrowing Limits

The minimum and maximum amounts that may be borrowed under this Loan Program on a per borrower basis are as follows:

Minimum Loan Amount: $1,000 (or any other higher minimum loan amount as applicable by state law)

Annual Maximum Loan Limit: Cost of Education less other financial aid

Aggregate Private Student Loan Program Limits:

Minimum Loan Amount:

Annual Maximum Loan Limit:

Aggregate Private Student Loan Program Limits:

Associate degree programs:	$	35,000
Bachelors degree programs:	$	60,000
*Resulting in maximum undergraduate (Associate and Bachelors combined):	$	60,000
Graduate degree programs:	$	25,000
*Resulting in maximum total of all combined:	$	85,000

Repayment Terms

The minimum monthly principal and interest payment amount will be $50.00 per account per month.

1) Repayment Plans

While a student is enrolled at an ITT Technical Institute, repayment of principal and interest will be deferred until the circumstances described in the “Repayment Begins” section below occur. During the deferral period the borrower will be sent quarterly statements providing him or her the opportunity to make interest payments. During the deferral period, the borrower can also make principal payments at any time without penalty.

2) Repayment Begins

Repayment of principal and interest on each loan will begin six (6) months after the student graduates, unless the student enrolls in another program at ITT Technical Institute and begins taking courses. For students who do not maintain at least four (4) credit hours in a given quarter for any reason other than graduation, repayment of principal and interest will begin three (3) months after their last clay of attendance unless the student re-enrolls in an ITT Technical Institute and begins to take at least four (4) credit hours.

Repayment of principal and interest on each loan will begin, if not already begun pursuant to the terms of the preceding paragraph, on the first day following the seventh (7th) year anniversary of the date of the first disbursement on the loan.

3) Repayment Duration

The term of each loan will be ten (10) years from the date the repayment period begins.

4) Prepayment

The borrower may prepay all or a portion of the loan at any time without penalty.

Student CU Connect Private Student Loan Program Criteria

5) Late Charges

Borrowers will be assessed a late charge if they fail to make any part of an installment payment within 15 days after it becomes due. The late charge fee will be the lesser of $10.00 or 5% of the installment.

Program Eligibility and Credit Requirements

1) Eligible Borrower

The borrower must satisfy all of (a)-( d) below:

a) Be admitted to, or have graduated from, an ITT Technical Institute undergraduate or graduate program of study.

b) Be a U.S. Citizen or National, or a Permanent Resident.

AND

If there is a Co-signer, the Co-signer must be a U.S. Citizen or National, or a Permanent Resident. c) Meet all credit requirements specified below in Section 3.

OR

Have a credit-worthy co-signer who meets all credit requirements specified below in Section 3.

d) Be the age of majority, as determined by individual state requirements for the primary borrower’s permanent residence, at the time of the loan application.

2) Eligible Loan Periods

Current and Future

Borrowers can apply for a loan relating to an academic year that begins within twelve (12) months after the loan application date. The first disbursement for a subsequent academic year must also occur within twelve (12) months after the loan application date.

Past Enrollment

Borrowers may borrow funds for previous academic periods during which they were enrolled as long as such borrower has either graduated or is enrolled in an ITT Technical Institute on the loan application date.

3) Credit Requirements

To qualify for a loan, an eligible borrower must satisfy all of the following credit requirements:

a) No filed bankruptcy, discharged bankruptcy or foreclosure within the twenty-four (24) months immediately preceding the loan application date.

b) No judgments, charge offs, collections, liens, or repossessions in an aggregate amount of more than five hundred dollars ($500) within the twenty-four (24) months immediately preceding the loan application date.

c) No mortgage, student loans, or other installment loans that are currently 90 days or more past due. d) No record of a student loan default, unless the default has been paid in full.

e) Less than three (3) derogatory credit indications on the borrower’s credit report. A derogatory credit indication is defined as a balance of at least five hundred dollars ($500) that is past due at least ninety (90) days.

f) A borrower who fails to qualify on his or her own for a loan may be eligible with an eligible co-signer who satisfies all of the credit requirements and who has a credit score of at least 680.

Student CU Connect Private Student Loan Program Criteria

At such time, if any, that the origination vendor of the loans can support it in an automated format, the foregoing (a) and (d) credit requirements will be modified to read instead as follows:

a) No filed bankruptcy, discharged bankruptcy or foreclosure within the twenty-four (24) months immediately preceding the loan application date unless the borrower has agreed to payment arrangements and made prompt payments for at least the last consecutive 18 months.

d) No record of a student loan default, unless the default has been paid in full, or the borrower is making satisfactory progress in repaying the loan. Satisfactory progress is defined as: at least twelve (12) consecutive payments made: account is current: repayment history has no gaps: and the IRS Tax Offset Program was not used to pay default.

Notwithstanding the foregoing, a borrower who is otherwise eligible under all of the other provisions of these loan criteria does not need to satisfy all of the foregoing (a) through (f) credit requirements to qualify for a loan if .such borrower: (i) received the open account credit provided by ITT Technical Institute (known as its “Temporary Credit” program); (ii) has graduated or is enrolled in any academic quarter other than the first academic quarter of such borrower’s first academic year on the loan application date; and (iii) has not declared bankruptcy within the twenty-four (24) months immediately preceding the loan application elate.

4) Credit Score

The eligible borrower’s FICO Score will determine the interest rate and fee charged on the loan as follows:

Tier	FICO Score	Interest Rate Range	Origination Fee*
1	790+	Prime +0.5%	N/A
2	720-789	Prime +1.5%	2%
3	680-719	Prime +4.0%	3%
4	650-679	Prime +6.0%	5%
5	600-649	Prime +7.0%	7%
6	No credit score	Prime +8.0%	8%
7	599 and below	Prime +10.5%	10%

* Origination fee calculated as a percent of loan amount

Eligible borrowers with an Experian-Fair Isaac Score Code of 9002 or 9003 will be priced as if part of Tier 6 (“No Credit Score”).

The origination fee will be credited in full to the borrower if an entire disbursement is refunded within 60 days of the disbursement date.

Notwithstanding the rates and fees set forth in the table above, the annual percentage rate, including the capitalized origination fee, on any loan will not exceed eighteen percent (18%) over the term of the loan, or such other limit under applicable law that may be in effect from time to time.

5) Deferment

a) In School

Principal and interest payments on a Joan may be deferred by the borrower during the period that the student is enrolled in an undergraduate or graduate program at an ITT Technical Institute and is taking at least four (4) credit hours. Upon graduation, the student may defer payment of the Joan principal and interest for an additional six (6) months (“grace period”). If the student enrolls in another program at an ITT Technical Institute and begins taking courses before or after the end of such six (6) months, the deferral will continue or begin again, as applicable, until such time as repayment is to begin under the terms of these loan criteria. Students whose enrollment terminates prior to graduation, or who are taking less than four (4) credit hours, will have a three (3) month grace period before principal and interest payments begin.

Student CU Connect Private Student Loan Program Criteria

If the student re-enrolls in an ITT Technical Institute and begins to take at least four (4) credit hours before or after the end of such three (3) month period, the deferral will continue or begin again, as applicable, until such time as repayment is to begin under the terms of these loan criteria. Borrowers will receive quarterly statements while enrolled.

b) Military

A military deferment will be available for a period during which a borrower is serving on active duty during a war or other military operation or national emergency, or performing qualifying National Guard duty during a war or other military operation or national emergency (“Qualifying Duty’’). A borrower who is a member of the National Guard or other reserve component of the U. S. Armed Forces (current or retired) and who begins serving Qualifying Duty while enrolled at ITT Technical Institute, or within six (6) months after having been enrolled, is eligible to defer paying any principal or interest on a loan during the Qualifying Duty service and during the 13 months following the conclusion of the Qualifying Duty service, or until the date that the borrower returns to an enrolled student status at ITT Technical Institute, whichever is earlier.

6) Forbearance

A borrower may request a forbearance of the payment of principal and interest on a loan, which Student CU Connect CUSO will grant in its sole discretion. Any single forbearance in the payment of a loan may not exceed three (3) months, and all forbearances granted with respect to a loan may not, in aggregate, exceed twelve (12) months over the life of the loan. If the borrower is delinquent at the time a forbearance is granted, all past due interest on the loan will be capitalized.

7) Interest Rate

Interest will accrue at a variable rate, beginning on the date that any portion of the loan is disbursed, on the outstanding principal balance, including any capitalized interest and origination fees. The variable rate may change monthly on the first day of each month based on the Prime Rate as of the third to last business day of the immediately preceding month. The Prime Rate is defined as the highest U.S. Prime Rate published in The Wall Street Journal “Money Rates’’ section.

The applicable interest rate will be rounded to the nearest one-eighth of one percent (0.125%). In the event of a change in the Prime Rate, monthly payments will be calculated based on the then current principal balance, the remaining term of the loan, and the then current interest rate, based on a 365.25-day calendar year and will not vary in leap years.

Notwithstanding any other provisions herein, at no time will the applicable interest rate, inclusive of the capitalized origination fee, be such that the annual percentage rate on any loan exceeds eighteen percent (18%) or such other limit under applicable law as in effect from time to time.

8) Co-Signer Eligibility

To be eligible to co-sign a loan, a co-signer must have a FICO score of at least 680 and satisfy other criteria specified above in Sections 1 (other than 1(a)) and 3. Loans with an eligible co-signer will be charged interest and fees at the Tier 4 level in Section 4 above.

9) Default & Charge-Off

A loan will be in reportable default if any principal or interest payment under the loan is sixty (60) days past due.

A loan will be charged off if payments under the loan are due and not received for a period of one hundred and eighty (180) days.

FIRST AMENDMENT TO

FINANCING PROGRAM AGREEMENT

This FIRST AMENDMENT TO FINANCING PROGRAM AGREEMENT (this “Amendment”) is made and entered into effective as of December 30, 2009, by and between ITT EDUCATIONAL SERVICES, INC. a Delaware corporation, on behalf of itself and its Affiliates and subsidiaries (“ITT ESI”), and STUDENT CU CONNECT CUSO, LLC, a Delaware limited liability company operating as a credit union service organization (the “CUSO”).

RECITALS

The following recitals are a material part of this Amendment:

A. ITT ESI and the CUSO are parties to that certain Financing Program Agreement entered into as of February 20, 2009 (the “Program Agreement”).

B. Capitalized terms used in this Amendment and not otherwise defined herein shall have the meanings provided in the Program Agreement and Schedule A thereto.

C. Section 3.2(b) of the Program Agreement currently provides that the CUSO shall reimburse ITT ESI for certain costs and expenses in connection with the design and implementation of the Program payable in equal quarterly installments over a three-year period.

D. In consideration of the CUSO’s entry into, with ITT ESI, the First Amendment to Loan and Security Agreement and First Amendment Allonge to Revolving Note, each dated contemporaneously herewith, ITT ESI has agreed to forgo the reimbursement contemplated by Section 3.2(b) of the Program Agreement.

E. In connection with the foregoing, the parties hereto desire to amend the Program Agreement as set forth in this Amendment.

AGREEMENT

NOW THEREFORE, in consideration of foregoing and the mutual promises and covenants contained herein, and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows:

1. The Program Agreement is hereby amended by deleting Section 3.2(b) in its entirety.

2. Except as amended by this Amendment, the remainder of Section 3.2 and the Program Agreement remain unchanged and in full force and effect.

3. This Amendment may be executed in multiple counterparts, each of which shall for all purposes be deemed to be an original and both of which shall together constitute but one and the same instrument.

IN WITNESS WHEREOF, the parties have caused their names to be signed hereto by their respective duly authorized officers effective as of the date first above written.

ITT EDUCATIONAL SERVICES, INC.
By:	/s/ Kevin M. Modany
Name:		Kevin M. Modany
Title:		Chairman and CEO

STUDENT CU CONNECT CUSO, LLC
By:	/s/ Daniel R. Kampen
Name:		Daniel R. Kampen
Title:		CUSO Administrator

2

SECOND AMENDMENT TO

FINANCING PROGRAM AGREEMENT

This SECOND AMENDMENT TO FINANCING PROGRAM AGREEMENT (this “Amendment”) is made and entered into effective as of August __27_, 2010, by and between ITT EDUCATIONAL SERVICES, INC., a Delaware corporation, on behalf of itself and its Affiliates and subsidiaries (“ITT ESI”), and STUDENT CU CONNECT CUSO, LLC, a Delaware limited liability company operating as a credit union service organization (the “CUSO”).

RECITALS

The following recitals are a material part of this Amendment:

A. ITT ESI and the CUSO are parties to that certain Financing Program Agreement entered into as of February 20, 2009 and amended by that First Amendment to Financing Program Agreement entered into effective as of December 30, 2009 (as amended, the “Program Agreement”).

B. Capitalized terms used in this Amendment and not otherwise defined herein shall have the meanings provided in the Program Agreement and Schedule A thereto.

C. Section 2.11 of the Program Agreement currently contains provisions regarding origination and servicing activities related to the Loans that do not accurately reflect the intentions of the parties.

D. In connection with the foregoing, the parties hereto desire to amend the Program Agreement as set forth in this Amendment in order to clarify the parties’ intentions that the CUSO has the power to direct the origination and servicing activities related to the Loans.

AGREEMENT

NOW THEREFORE, in consideration of foregoing and the mutual promises and covenants contained herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

1. Section 2.11 of the Program Agreement is hereby amended to read in its entirety as follows:

“2.11 Origination and Servicing Arrangements.

(a) The Originating Entity will be the named lender on the Loan Documents.

(b) Each Loan will be purchased under the Purchase Agreement on a servicing-released basis. The CUSO will cause the Originating Entity to transfer to the CUSO with each Loan purchased the right to service such Loan. Except as otherwise provided in this Agreement, the Servicing Agreement or the Risk Sharing Agreement, all decisions with respect to the administration, collection, enforcement, servicing and charge off of any Loan shall be made by the CUSO in accordance with the Collection and Charge Off Standards and in consultation with ITT ESI.

(c) The CUSO will cause the origination and documentation of Loans to be serviced by the Origination Vendor pursuant to the Origination Agreement. The Origination Vendor and the terms of the Origination Agreement shall be subject to the approval of ITT ESI. The CUSO shall regularly consult with ITT ESI regarding the selection, supervision, financial condition and performance of the Origination Vendor. Errors and omissions of the Origination Vendor shall not affect the obligations of either party under this Agreement.

(d) The CUSO, through the Servicer, will service the Loans in accordance with the terms of the Servicing Agreement and the Collection and Charge Off Standards. Each Servicer and the terms of its respective Servicing Agreement shall be subject to the approval of ITT ESI. The CUSO shall regularly consult with ITT ESI regarding the selection, supervision, financial condition and performance of the Servicer. Errors or omissions of the Servicer shall not affect the obligations of either party under this Agreement.

(e) The CUSO shall cause the Originating Entity to assign to the CUSO all rights of the Originating Entity under the Origination Agreement, which rights may be exercised by the CUSO upon any Originating Entity Default, any uncured default by the Origination Vendor under the Origination Agreement, or any breach of the representations and warranties in this Agreement or the Purchase Agreement, as fully as if the CUSO were an original party thereto.

(f) Each Origination Agreement and Servicing Agreement shall name ITT ESI as an express third-party beneficiary of such agreement, with full power and authority to enforce the same as if it were an original party thereto, and shall further provide that such agreement may not be amended, modified, terminated or assigned without ITT ESI’s prior express written consent.

(g) Fees and expenses in connection with the origination and servicing of each Loan shall be paid by the CUSO in accordance with the applicable Origination Agreement and Servicing Agreement.”

2. Except as amended by this Amendment, the remainder of the Program Agreement remains unchanged and in full force and effect.

3. This Amendment may be executed in multiple counterparts, each of which shall for all purposes be deemed to be an original and both of which shall together constitute but one and the same instrument.

2

IN WITNESS WHEREOF, the parties have caused their names to be signed hereto by their respective duly authorized officers effective as of the date first above written.

ITT EDUCATIONAL SERVICES, INC.
By:	/s/ Kevin M. Modany
Name:		Kevin M. Modany
Title:		Chairman & CEO

STUDENT CU CONNECT CUSO, LLC
By:	/s/ Dan Kampen
Name:		Dan Kampen
Title:		Program Administrator

3

THIRD AMENDMENT TO

FINANCING PROGRAM AGREEMENT

This THIRD AMENDMENT TO FINANCING PROGRAM AGREEMENT (this “Amendment”) is made and entered into effective as of January 3, 2011, by and between ITT EDUCATIONAL SERVICES, INC., a Delaware corporation, on behalf of itself and its Affiliates and subsidiaries (“ITT ESI”), and STUDENT CU CONNECT CUSO, LLC, a Delaware limited liability company operating as a credit union service organization (the “CUSO”).

RECITALS

The following recitals are a material part of this Amendment:

A. ITT ESI and the CUSO are parties to that certain Financing Program Agreement entered into as of February 20, 2009, as amended by that First Amendment to Financing Program Agreement entered into as of December 30, 2009, and further amended by that Second Amendment to Financing Program Agreement entered into as of August 27, 2010 (as amended, the “Agreement”).

B. Capitalized terms used in this Amendment and not otherwise defined herein shall have the meanings provided in the Agreement and Schedule A thereto.

C. ITT ESI and the CUSO have agreed, among other things, to amend the Agreement to provide that the CUSO may obtain enhanced servicing with respect to the Loans.

D. In connection with the foregoing, the parties hereto desire to amend the Agreement as set forth in this Amendment.

AGREEMENT

NOW THEREFORE, in consideration of foregoing and the mutual promises and covenants contained herein, and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows:

1. The following definitions of Servicer, Servicing Agreement, and Servicing Fee, as set forth on Schedule A to the Agreement, are hereby amended to read in their entirety as follows:

“Servicer” means the Person or Persons obligated pursuant to one or more Servicing Agreements to, among other things, collect, monitor and report Loan payments, handle late payments and other delinquencies, and remit payments.

“Servicing Agreement” means any Servicing Agreement entered into from time to time between the CUSO and any Servicer, as amended, supplemented, modified, or replaced from time to time.

“Servicing Fee” means all fees payable to any Servicers and/or the Origination Vendor for performing their respective obligations under the applicable Servicing Agreements or the Origination Agreement, as the case may be.

2. Schedule A to the Agreement is hereby further amended to add the following definition of Enhanced Servicing:

“Enhanced Servicing” means such services and activities of a Servicer provided with respect to Loans that are in addition to those services and activities set forth in that certain Business Requirements Document dated January 21, 2009.

3. Subsection 2.9(k) of the Agreement is hereby amended by adding the following at the end of such Subsection: “Notwithstanding anything contained herein to the contrary, during (and only during) Funding Year 2011, at the CUSO’s option exercised from time to time during such Funding Year with prior written notice to ITT ESI, any amounts payable to the CUSO as refunds of Loans and otherwise required to be paid to ITT ESI under the Credit Facility Documents as set forth above shall be deposited in the Commitment Account to be utilized to purchase Loans from time to time, as provided in Section 7(c) of the Participation Agreement.

4. Subsection 2.11(d) of the Agreement is hereby amended in its entirety to read as follows:

(d) The CUSO, through the Servicer, will service the Loans in accordance with the terms of the Servicing Agreement and the Collection and Charge Off Standards. The CUSO may also from time to time engage one or more Servicers to provide Enhanced Servicing with respect to Loans. Each Servicer and the terms of its respective Servicing Agreement shall be subject to approval of ITT ESI. The CUSO shall regularly consult with ITT ESI regarding the selection, supervision, financial condition and performance of Servicers. Errors or omissions of a Servicer shall not affect the obligations of either party under this Agreement.

5. Except as amended by this Amendment, the remainder of each of Schedule A, Section 2.9, Section 2.11, and the Agreement are unchanged and remain in full force and effect.

6. This Amendment may be executed in multiple counterparts, each of which shall for all purposes be deemed to be an original and both of which shall together constitute but one and the same instrument.

[Remainder of Page Intentionally Blank; Signature Page Follows.]

2

IN WITNESS WHEREOF, the parties have caused their names to be signed hereto by their respective duly authorized officers effective as of the date first above written.

ITT EDUCATIONAL SERVICES, INC.
By:	/s/ Kevin M. Modany
Name:		Kevin M. Modany
Title:		Chairman and CEO

STUDENT CU CONNECT CUSO, LLC
By:	/s/ Joe Karlin
Name:		Joe Karlin
Title:		Program Administrator

[Signature Page to Third Amendment to Financing Program Agreement.]

3

EX-10.55

EXHIBIT 10.55

LOAN AND SECURITY AGREEMENT

This LOAN AND SECURITY AGREEMENT (this “Agreement”) is made effective as of May 18, 2009 (the “Effective Date”) between STUDENT CU CONNECT CUSO, LLC, a Delaware limited liability company (“Borrower”), and ITT EDUCATIONAL SERVICES, INC., a Delaware corporation (“Lender”).

In consideration of the consideration and mutual agreements set forth in this Agreement, Borrower and Lender agree as follows:

1. DEFINITIONS.

1.1 Defined Terms. The following words and phrases have the following meanings.

“Administrative Fee”: The monthly amount paid to Borrower under, and as defined in, the Participation Agreement.

“Advance Termination Date”: December 31, 2011.

“Bailment Agreement”: The Bailment Agreement among the Servicer, Borrower and Lender, as amended, modified, restated or replaced from time to time.

“Bankruptcy Code”: The United States Bankruptcy Code, as now existing or hereafter amended.

“Business Day”: Any day other than Saturday, Sunday, a United States national holiday or other day on which banks in the State of Indiana are permitted or required by law to close.

“Collateral”: As defined in Section 6.1.

“Controlled Group”: All members of a controlled group of corporations and all trades or businesses (whether or not incorporated) under common control which, together with Borrower, are treated as a single employer under Section 414 of the Internal Revenue Code.

“Default Rate”: The per annum rate of interest equal to the Interest Rate plus two percent (2.00%) per annum.

“Depository Bank”: The federal credit union at which Borrower maintains the Distribution Account and the Operating Account. The initial Depository Bank is Eli Lilly Federal Credit Union.

“Distribution Account”: The segregated account maintained by Borrower with the Depository Bank in which collections on the Student Loans will be deposited and from which Borrower will withdraw funds to make distributions to itself and the Participants as set forth in Sections 7(a)-(b) of the Participation Agreement.

“Employee Plan”: Any pension, stock bonus, employee stock ownership plan, retirement, disability, medical, dental or other health plan, life insurance or other death benefit plan, profit sharing, deferred compensation, stock option, bonus or other incentive plan, vacation benefit plan, severance plan or other employee benefit plan or arrangement, including any pension, profit-sharing or retirement plans, welfare plan, Defined Benefit Pension Plans (as defined in ERISA) or any multi-employer plan, maintained or administered for employees of Borrower or any member of the Controlled Group, or any such plan or arrangement to which Borrower or any member of the Controlled Group is required to contribute on behalf of any of its employees.

“ERISA”: The Employee Retirement Income Security Act of 1974, as amended from time to time.

“Event of Default”: As defined in Section 10.

“Funding Year”: The calendar year corresponding to each Student Loan Pool and in which a Student Loan is disbursed.

“Indebtedness”: At any time (a) all Liabilities of Borrower, (b) all lease obligations of Borrower, (c) all other debt, secured or unsecured, created, issued, incurred or assumed by Borrower for money borrowed or for the deferred purchase price of any fixed or capital asset, (d) indebtedness secured by any Lien existing on property owned by Borrower (whether or not the Indebtedness secured thereby has been assumed), and (e) all contingent liabilities of Borrower whether or not reflected on its balance sheet.

“Indemnified Party”: Lender, its successors and assigns and their respective affiliates, directors, officers, members, managers, partners, employees and agents.

“Interest Rate”: The per annum rate equal to the Prime Rate plus 55/100 percent (0.55%) per annum.

“Internal Revenue Code”: The Internal Revenue Code of 1986, as amended from time to time and the regulations promulgated thereunder.

“Liabilities”: All liabilities of Borrower that would be shown as such on a balance sheet of Borrower.

“Lien”: any mortgage, pledge, hypothecation, judgment lien or similar legal process, title retention lien, or other lien or security interest, including the interest of a vendor under any conditional sale or other title retention agreement and the interest of a lessor under a lease of any interest in any kind of property or asset, whether real, personal or mixed, or tangible or intangible.

“Loans”: The direct advances made from time to time by Lender to Borrower in the form of a loan under and pursuant to this Agreement, as set forth in Section 2.1.

“Loan Documents”: As defined in Section 3.1.

“Loan Maturity Date”: The earlier to occur of (i) December 31, 2026 or (ii) the date that is fifteen (15) years after the final disbursement of a Loan under this Agreement.

“Management Agreement”: The Management Services Agreement dated as of February 20, 2009 between the Program Administrator and Borrower, as amended, modified, restated or replaced from time to time.

“Material Adverse Effect”: A material adverse change in the financial condition, properties, business or operations of Borrower (in each case as determined by Lender pursuant to its Decision Power), including (i) any default by Borrower in the performance of its obligations under the Program Documents, (ii) any termination of the Management Agreement (unless a replacement management agreement acceptable to Lender is effected) and (iii) any termination of the Program Agreement or the Program (except for a termination in the normal course and contemplated term of, and without a default under, the Program).

“Maximum Loan Amount”: The maximum aggregate amount in Loans advanced by Lender that may be outstanding on any date of determination up to but not including the Advance Termination Date, which amount is (i) One Hundred Million and 00/100 Dollars ($100,000,000.00) during the 2009 calendar year, (ii) Two Hundred Million and 00/100 Dollars ($200,000,000.00) during the 2010 calendar year, and (iii) Three Hundred Million and 00/100 Dollars ($300,000,000.00) during the 2011 calendar year until but not including the Advance Termination Date. To avoid doubt, after the Advance Termination Date, Lender will not advance any Loans and the aggregate amount of outstanding Loans will be repaid by Borrower as provided in this Agreement.

2

“Note”: As defined in Section 4.

“Obligations”: The Loans (as evidenced by the Note), all interest accrued thereon, any fees due Lender under this Agreement, any expenses incurred by Lender under or in connection with this Agreement and any and all other liabilities and obligations of Borrower (and of any partnership in which Borrower is or may be a partner) to Lender under or in connection with this Agreement and the other Loan Documents, however created, arising or evidenced, and however owned, held or acquired, whether now or hereafter existing, whether now due or to become due, direct or indirect, absolute or contingent, and whether several, joint or joint and several.

“Obligor”: Borrower, any other guarantor, accommodation endorser, third party pledgor, or any other party liable with respect to the Obligations.

“Operating Account”: The segregated account maintained by Borrower with the Depository Bank in which Borrower will maintain funds for day-to-day operations.

“Operating Expense Advance”: As defined in Section 2.1(b)(ii).

“Origination Agreement”: The agreement between the Student Loan Originating Entity and the Origination Vendor, as amended, supplemented, modified, or replaced from time to time, pursuant to which the Origination Vendor will perform certain obligations with respect to the origination and documentation of the Student Loans.

“Origination Vendor”: The Person performing Student Loan origination and documentation services under the Origination Agreement.

“Participants”: The credit unions that acquire Participation Interests in the Student Loans in any Loan Pool.

“Participation Agreement”: The Participation Agreement entered into between Borrower and the Participants, as amended, modified, restated or replaced from time to time.

“Participation Interest”: With respect to each Participant, its beneficial ownership interest in each Student Loan in the Program, including such Participant’s right to receive its share of Student Loan proceeds on each Program Payment Date.

“Permitted Liens”: As defined in Section 8.2.

“Person”: Any individual, partnership, limited liability company, corporation, trust, joint venture, joint stock company, association, unincorporated organization, government or agency or political subdivision thereof, or other entity.

“Prime Rate”: The floating per annum rate of interest that, at any time and from time to time, is most recently published in the Money Rate Section of The Wall Street Journal as the Prime Rate, which rate is not intended to be Lender’s lowest or most favorable rate of interest at any one time. For purposes of this Agreement, the Prime Rate will be determined on the first day of each month and will remain in effect for such month regardless of any published changes in the Prime Rate during such month. If more than one Prime Rate appears, then the highest rate will be used. The effective date of any change in the Prime Rate shall for purposes of this Agreement be the date such change in the Prime Rate is so published in the Money Rate Section of The Wall Street Journal. Lender shall not be obligated to give notice of any change in the Prime Rate.

3

“Program”: The national financing program established by Borrower to provide private student loans to Students in accordance with the Program Agreement.

“Program Administrator”: The Person designated from time to time as the “Program Administrator” under the Program Agreement. The initial Program Administrator is TRG.

“Program Agreement”: The Financing Program Agreement dated as of February 20, 2009 between Lender and Borrower, as amended, modified, restated or replaced from time to time.

“Program Documents”: The Program Agreement, the Participation Agreement, the Servicing Agreement(s), the Risk Sharing Agreement, and any other documents or instruments entered into in connection with the Program, and any amendment, modification, restatement or replacement thereof.

“Program Payment Date”: The 25^th day of each month or, if such day is not a Business Day, the following Business Day.

“Retained CUSO Interest”: With respect to each Student Loan in a Student Loan Pool, on any date of determination, the portion thereof that is not then subject to Participation Interests held by Participants.

“Risk Sharing Agreement”: The Risk Sharing Agreement dated as of February 20, 2009 between Lender and Borrower in connection with the Program, as amended, supplemented, modified, restated or replaced from time to time.

“Servicer”: The Person obligated pursuant to the Servicing Agreement to, among other things, collect, monitor and report Student Loan payments, handle late payments and other delinquencies, and remit payments.

“Servicing Agreement”: The Servicing Agreement dated as of February 20, 2009 between Borrower and the Servicer, as amended, supplemented, modified, or replaced from time to time.

“Servicing Fee”: The “servicing fee” payable to Servicer for performing its obligations under the Servicing Agreement.

“Student”: A student enrolled at one of Lender’s ITT Technical Institutes.

“Student Loan”: A loan made to Students and originated in connection with the Program.

“Student Loan Documents”: With respect to each Student Loan, the Student Loan Note and all other documents and instruments evidencing, securing or otherwise relating to such Student Loan.

“Student Loan Funding Account”: The account designated by the Student Loan Originating Entity into which Borrower will deposit the purchase price for Student Loans in connection with the Program.

“Student Loan Note”: The promissory note evidencing each Student Loan.

“Student Loan Originating Entity”: The federal credit union that will originate Student Loans and sell such Student Loans to Borrower in connection with the Program.

4

“Student Loan Pool”: A discrete pool of Student Loans disbursed during a Funding Year in connection with the Program.

“Student Loan Purchase Advance”: As defined in Section 2.1(b)(i).

“Subsidiary”: Any corporation, partnership, limited partnership, limited liability company, limited liability partnership or other entity of which or in which Borrower owns directly or indirectly fifty percent (50.00%) or more of (a) the combined voting power of all classes of stock having general voting power under ordinary circumstances to elect a majority of the board of directors of such entity if a corporation, (b) the management authority and capital interest or profits interest of such entity, if a partnership, limited partnership, limited liability company, limited liability partnership, joint venture or similar entity, or (c) the beneficial interest of such entity, if a trust, association or other unincorporated organization.

“TRG”: The Rochdale Group, Inc., a Kansas corporation.

“UCC”: The Uniform Commercial Code in effect in the State of Delaware from time to time.

1.2 Accounting Terms. Any accounting terms used in this Agreement that are not specifically defined in this Agreement have the meanings customarily given them.

1.3 Other Terms Defined in UCC. All other capitalized words and phrases used in this Agreement and not otherwise specifically defined have the respective meanings assigned to such terms in the UCC, as amended from time to time.

1.4 Other Definitional Provisions; Construction. Whenever the context so requires, the neuter gender includes the masculine and feminine, the single number includes the plural, and vice versa, and in particular the word “Borrower” shall be so construed. The words “hereof’, “herein” and “hereunder” and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement, and references to Article, Section, Subsection, Annex, Schedule, Exhibit and like references are references to this Agreement unless otherwise specified. The term “include” or “including” means without limitation by reason of enumeration. The term “or” has, except where otherwise indicated, the inclusive meaning represented by the phrase “and/or.” An Event of Default shall “continue” or be “continuing” until such Event of Default has been waived in accordance with Section 12.3 of this Agreement. References in this Agreement to any party include such party’s successors and permitted assigns. To the extent any of the provisions of the other Loan Documents are inconsistent with the terms of this Agreement, the provisions of this Agreement shall govern.

2. LOANS; PAYMENTS; INTEREST.

2.1 Loans; Payments.

(a) Loans. Subject to the terms and conditions of this Agreement and the other Loan Documents, and in reliance upon the representations and warranties of Borrower set forth in this Agreement and in the other Loan Documents, Lender may make Loans to Borrower at such times and in such amount as Lender deems appropriate in its sole and absolute discretion. Borrower acknowledges and agrees that (i) Lender may decline to make a Loan under this Agreement in its sole and absolute discretion and regardless of Borrower’s satisfaction any precedent conditions to a Loan described in this Agreement and (ii) Lender will not and has no intention to (x) make any Loans on or after the Advance Termination Date or (y) make any Loan that would cause the aggregate outstanding principal balance of all Loans to exceed the Maximum Loan Amount. Loans made by Lender may be repaid and, subject to the terms and conditions hereof, advanced again by Lender up to (but not including) the Advance Termination Date.

5

(b) Use of Loan Advances. The Loans shall be used by Borrower only to:

(i) fund the purchase of all or portions of Student Loans in connection with the Program (in such case, a “Student Loan Purchase Advance”); and

(ii) pay the following operating expenses of Borrower incurred in connection with the Program: (A) Servicing Fees payable to the Servicer under the Servicing Agreement; (B) loan origination or underwriting fees payable to the Origination Vendor under the Origination Agreement; (C) interest payable to Lender under this Agreement in connection with Student Loan Purchase Advances; (D) fees payable to the Student Loan Originating Entity; (E) other Borrower operating expenses, including third-party audits and reviews, legal expenses, travel expenses, administrative expenses and expenses for static pool and rate shock analyses; (F) reimbursement of certain Lender expenses relating to the development of the Program as described in Section 3.2(b) of the Program Agreement; (G) payments to the Program Administrator pursuant to the Management Agreement; (H) reimbursements to the Student Loan Originating Entity of data processing expenses related to membership; and (I) interest payable to Lender under this Agreement in connection with advances for any of the foregoing expenses (in any such case, an “Operating Expense Advance”).

(c) Payments.

(i) Interest Payments. Without limiting the required payments described in Section 2.1(c)(iii) below, accrued and unpaid interest on the principal balance of the Loans shall be due and payable on the first (1^st) day of each quarter, in arrears, commencing on January 1, 2011 and continuing on the first (1^st) day of each calendar quarter thereafter (i.e. April 1, July 1, October 1 and January 1 in each year), and on the Loan Maturity Date.

(ii) Maturity Repayment. The outstanding principal balance of the Obligations (including the Loans and all accrued interest thereon) shall be repaid by Borrower on the Loan Maturity Date, unless payable sooner pursuant to the provisions of this Agreement.

(iii) Interim Payments.

(A) Allocations under the Program. If any Obligations are outstanding under this Agreement on any Program Payment Date, then all amounts payable to Borrower pursuant to Section 7(b) of the Participation Agreement in connection with its Retained CUSO Interest, if any (and not any amounts paid to Borrower as the Administrative Fee under the Participation Agreement), without regard to the Student Loan Pool related to such Retained CUSO Interest, shall be paid to Lender on such Program Payment Date.

(B) Student Loan Refunds. If any Obligations with respect to Student Loan Purchase Advances are outstanding under this Agreement, then all amounts payable to Borrower as refunds of Student Loans pursuant to Section 7(c) of the Participation Agreement, if any, without regard to the Student Loan Pool related to such Student Loan refund, shall be paid to Lender within two (2) Business Days after Borrower’s receipt thereof. Any such refunded amounts that exceed the amount of outstanding Obligations with respect to Student Loan Purchase Advances shall be utilized by Borrower as required by the Participation Agreement and the other Program Documents. If Lender is effecting any such refund of a Student Loan and such refund is payable to Borrower, then Lender may offset and retain such amount as a payment under this Section 2.1(c)(iii)(B).

6

(C) Sales and Other Transactions of Student Loans and the Retained CUSO Interest. Pursuant to the Participation Agreement and the Program Agreement, Borrower has the right under the Program to effect certain sales and transactions of its interests therein, including (i) securitizations and whole-loan sales of Student Loans in a Student Loan Pool following the related Funding Year and (ii) sales of participation interests corresponding to its related Retained CUSO Interest with respect to a Student Loan Pool. Borrower agrees that the proceeds of any such sale or other transaction received by it shall, if any Obligations are then outstanding under this Agreement and without regard to the Student Loan Pool affected by such sale or transaction, be paid to Lender on the Business Day following Borrower’s receipt thereof.

(D) Loss Sharing Offsets. If any Obligations are outstanding under this Agreement and Lender has an obligation under the Risk Sharing Agreement to make a payment to or for the benefit of Borrower in connection with its Retained CUSO Interest, then such amount may be offset by Lender and retained as a payment by Borrower under this Agreement.

(iv) Optional Payments. In addition to the mandatory payments described in this Section 2.1(c), Borrower may from time to time pay down or pay off the Obligations, in whole or in part, without any prepayment penalty whatsoever.

(v) Remittance Account. All payments made under this Agreement shall be made by electronic transfer to the account designated in writing by Lender to Borrower from time to time.

(vi) Application of Payments and Collections. Borrower irrevocably waives the right to direct the application of any and all payments and collections of the Obligations at any time or times after the Effective Date received by Lender from or on behalf of Borrower or any other Obligor, and Borrower hereby agrees that Lender shall have the continuing exclusive right to apply and reapply any and all such payments and collections received at any time or times after the Effective Date by Lender against the Obligations, in such manner as Lender may deem advisable, notwithstanding any entry by Lender upon any of its books and records.

2.2 Interest Rates and Computation; Collection of Funds. Except as otherwise provided in this Section 2.2, the principal amount of the Loans outstanding from time to time shall bear interest at the Interest Rate. Any amount of principal or interest on the Loans that is not paid when due, whether at stated maturity, by acceleration or otherwise, and any other amounts under the Note and other Loan Documents not paid when due, shall accrue interest at the Default Rate. Borrower and Lender agree that the Default Rate is a reasonable and fair estimate of the losses that would be suffered by Lender in the event of a default although such losses are difficult to predict in amount. All interest and fees shall be calculated on the basis of a year consisting of 360 days and shall be paid for the actual number of days elapsed. Principal payments submitted in funds not immediately available shall continue to bear interest until collected. If any payment to be made by Borrower under this Agreement or the Note shall become due on a day other than a Business Day, such payment shall be made on the next succeeding Business Day and such extension of time shall be included in computing any interest in respect of such payment.

2.3 Take-out Financing. Borrower agrees that it will use its commercially reasonable best efforts to obtain a line of credit or other credit facility to replace the credit line contemplated by this Agreement as soon as possible after the Effective Date when such credit facility becomes available to Borrower on commercially reasonable terms, in which case the proceeds of such replacement credit facility shall be used to pay all Obligations outstanding under this Agreement as of the closing of such credit facility and this Agreement shall terminate. Borrower further agrees that it will report to Lender in writing the status of such credit facility search on a monthly basis and as otherwise requested by Lender from time to time.

7

3. CONDITIONS OF BORROWING.

3.1 Initial Advance. Prior to advancing the first Loan under this Agreement, Borrower must satisfy the following conditions to Lender’s satisfaction in its sole and absolute discretion:

(a) Loan Documents. Borrower must execute and deliver to Lender the following instruments and other documents (collectively, the “Loan Documents”):

(i) this Agreement;

(ii) the Note;

(iii) a deposit account control agreement with respect to each of the Distribution Account and the Operating Account;

(iv) the Bailment Agreement;

(v) a Collateral Assignment of Management Agreement (with TRG);

(vi) resolutions of the board of directors, managers or members of Borrower authorizing the execution of this Agreement and the other Loan Documents; and

(vii) such other certificates, financial statements, schedules, resolutions, notes and other documents that are provided for under this Agreement or that Lender shall reasonably require.

(b) Event of Default. No Event of Default, and no any event that, with notice or lapse of time or both, would constitute an Event of Default, exists or has occurred.

(c) Adverse Changes. No Material Adverse Effect has occurred, as determined in Lender’s sole and absolute discretion.

(d) Litigation. No litigation or governmental proceeding is instituted against Borrower or any of its members, managers, directors or officers, which in Lender’s sole and absolute discretion, materially adversely affects Borrower’s financial condition or continued operation.

(e) Representations and Warranties. Each representation or warranty of Borrower contained in this Agreement or in any other Loan Document must be true and correct.

3.2 Future Advances. Notwithstanding any other provision of this Agreement, Borrower acknowledges and agrees that this line of credit evidenced by this Agreement and the other Loan Documents is a specialty line of credit made available only as an accommodation in connection with the Program and that, accordingly, Lender retains the sole and absolute decision regarding whether any Loan advance is necessary, appropriate or advisable under any circumstances. Without limiting the foregoing, Borrower acknowledges and agrees that (i) Lender may decline to make a Loan under this Agreement in its sole and absolute discretion and regardless of Borrower’s satisfaction of any conditions described in this Section 3 and regardless of whether any adverse event or circumstance (e.g. an Event of Default), whether or not material, has occurred or exists, and (ii) Lender will not and has no intention to (x) make any Loans on or after the Advance Termination Date or (y) make any Loan that would cause the aggregate outstanding principal balance of all Loans to exceed the Maximum Loan Amount.

4. NOTE EVIDENCING LOAN.

The Loans shall be evidenced by a single Revolving Note (together with any and all renewal, extension, modification or replacement notes executed by Borrower and given in substitution therefor, the “Note”) in the form acceptable to Lender, duly executed by Borrower and payable to the order of Lender. At the time of the disbursement of any Loan, or a repayment made in whole or in part thereon, an appropriate notation thereof shall be made on the books and records of Lender. All amounts recorded shall be, absent demonstrable error, conclusive and binding evidence of (a) the principal amount of the Loans advanced under this Agreement, (b) any unpaid interest owing on the Loans and (c) all amounts repaid on the Loans. The failure to record any such amount or any error in recording such amounts shall not, however, limit or otherwise affect the obligations of Borrower under the Note to repay the principal amount of the Loans, together with all interest accruing thereon.

8

5. MANNER OF BORROWING.

Borrower shall deliver to Lender a written borrowing request at least two (2) Business Days prior to the proposed advance date of a Loan, in each case specifying the proposed date and amount of and specific uses for such Loan. Each such request delivered by Borrower shall be deemed to constitute a confirmation of Borrower’s representations and warranties in this Agreement and a confirmation that the conditions in Section 3.1 are satisfied, in each case as of the date of such request. Lender may request from Borrower, and Borrower will provide to Lender, supporting documentation and information in connection with any such borrowing request, including invoices for paid or payable expenses and budgets specifying future expenses.

Lender is authorized to rely on any written, verbal, electronic, telephonic or telecopy loan requests by a Person designated in writing by Borrower as authorized to make such request. The initial group of such Persons is designated on Schedule 5, which group may be modified by Borrower by delivering to Lender a revised Schedule 5 from time to time. Borrower irrevocably confirms, ratifies and approves all such advances by Lender and indemnifies Lender against losses and expenses (including attorneys’ fees and expenses) with respect thereto.

Any portion of a Loan constituting a Student Loan Purchase Advance will be paid directly to the Student Loan Funding Account. Any portion of a Loan constituting an Operating Expense Advance will be paid into the Operating Account.

6. SECURITY FOR THE OBLIGATIONS.

6.1 Security for Obligations. As security for the payment of the Obligations, Borrower pledges, assigns, transfers and delivers to Lender, and grants to Lender a continuing and unconditional security interest in and to, Borrower’s rights, title and interest in and to the following property, whether tangible or intangible, wherever located and whether now existing or hereafter arising or acquired (all of such property, individually and collectively, the “Collateral”):

(a) the Retained CUSO Interest (including any interest of Borrower in the Student Loans and the Student Loan Documents (whether tangible or electronic) evidencing or securing the Student Loans) and all accounts, general intangibles and payment intangibles related thereto;

(b) the Distribution Account, the Operating Account, all amounts deposited in such accounts and all contract rights and privileges in respect of such accounts, and all cash, checks, money orders and other items of value of Borrower now or hereafter paid, deposited, credited, held (whether for collection, provisionally or otherwise) or otherwise in the possession or under the control of, or in transit to, Lender or any agent, bailee or custodian thereof, credited or held to be credited to either such account;

(c) all personal property of, or for the account of, Borrower now or hereafter coming into the possession, control or custody of, or in transit to, Lender or any agent or bailee for Lender or any participant with Lender in the Loan (whether for safekeeping, deposit, collection, custody, pledge, transmission or otherwise), including all earnings, dividends, interest, or other rights in connection therewith and the products and proceeds therefrom;

(d) all additions and accessions to, replacements and substitutions for, products and proceeds of, rents, offspring, revenues and profits from, and all right, title, security, guaranties and supporting obligations with respect to, the property and the use or operation of the property described in Sections 6.1(a)-(c) above, whether tangible or intangible, and, to the extent not otherwise included, all payments under any insurance policy (whether or not Lender is the loss payee thereof) and under any indemnity, warranty or guaranty, payable by reason of loss or damage to, or otherwise with respect to, any of the foregoing Collateral.

9

To the extent that the UCC does not apply to any item of the Collateral, it is the intention of Borrower and Lender and this Agreement that Lender have a common law pledge or collateral assignment of such item of Collateral.

To avoid doubt, Lender acknowledges that (i) the Participants own Participation Interests in the Student Loans and have interests in amounts corresponding to such Participation Interests that are deposited in the Distribution Account and, (ii) accordingly, the Collateral does not include any Participation Interest in any Student Loan or any amount deposited in the Distribution Account that is payable to a Participant in connection with its Participation Interests in the Student Loans.

6.2 Possession and Transfer of Collateral.

(a) Subject to the payments required under Section 2.1(c)(iii) of this Agreement, until an Event of Default has occurred under this Agreement, Borrower shall be entitled to possession or use of the Collateral. The cancellation or surrender of the Note, upon payment or otherwise, shall not affect the right of Lender to retain the Collateral for any other of the Obligations.

(b) If any Obligations are outstanding under this Agreement, then Borrower shall not sell, assign (by operation of law or otherwise), license, lease or otherwise dispose of, or grant any option with respect to any of the Collateral, except that Borrower may, with Lender’s prior written consent (which consent may be granted or denied in Lender’s sole and absolute discretion), (i) effect a securitization including or a whole-loan sale of Student Loans in a Student Loan Pool following the related Funding Year, or (ii) sell one or more participation interests corresponding to all or a portion of Borrower’s Retained CUSO Interest with respect to a Student Loan Pool. Borrower must deliver to Lender notice of any such transaction at least ten (10) Business Days prior to the closing thereof and, pursuant to Section 2.1(c)(iii)(C), Borrower shall pay to Lender any proceeds resulting from any such sale or other transaction (without regard to the Student Loan Pool affected by such sale or transaction) on the Business Day following Borrower’s receipt thereof. Lender consent with respect to any such sale or transaction may include a condition that the proceeds thereof be paid directly to Lender without receipt by Borrower.

6.3 Financing Statements. Borrower shall, at Lender’s request, at any time and from time to time, authorize, execute or deliver to Lender such financing statements, amendments and other documents and do such acts as Lender deems necessary in order to establish and maintain valid, attached and perfected first security interests in the Collateral in favor of Lender, free and clear of all Liens and claims and rights of third parties whatsoever (except as otherwise specifically set forth in Section 8 of this Agreement). Borrower irrevocably authorizes Lender at any time, and from time to time, to file in any jurisdiction any initial financing statements and amendments thereto that (a) cover the Collateral (regardless of whether any particular asset comprised in the Collateral falls within the scope of Article 9 of the Uniform Commercial Code of the jurisdiction wherein such financing statement or amendment is filed) or describe the Collateral as being of an equal, lesser or greater scope or in lesser or greater detail, (b) indicate an agent or affiliate of Lender (whether or not indicating of the representative capacity of such agent or affiliate) as the secured party of record with respect to such financing statement (it being acknowledged and agreed that such agent or affiliate has no obligation or liability to Borrower under this Agreement or any other Loan Document), and (c) contain any other information required by Section 5 of Article 9 of the Uniform Commercial Code of the jurisdiction wherein such financing statement or amendment is filed, including (i) whether Borrower is an organization, the type of organization and any organization identification number issued to Borrower, and (ii) in the case of a financing statement filed as a fixture filing or indicating Collateral as as-extracted collateral or timber to be cut, a sufficient description of real property to which the Collateral relates. Borrower agrees to furnish any such information to Lender promptly upon request. Borrower further ratifies and affirms its authorization for any financing statements or amendments thereto filed by Lender in any jurisdiction prior to the Effective Date.

10

6.4 Preservation of the Collateral. Lender may, but is not required to, take such action from time to time as Lender deems appropriate to maintain or protect the Collateral. Lender shall exercise such reasonable care in the custody and preservation of the Collateral (if Lender takes such action) as Borrower reasonably requests in writing, but such request shall not be inconsistent with Lender’s status as a secured party, and the failure of Lender to comply with any such request shall not be deemed a failure to exercise reasonable care. In addition, any failure of Lender to preserve or protect any rights with respect to the Collateral against prior or third parties, or to do any act with respect to preservation of the Collateral requested by Borrower, shall not be deemed a failure to exercise reasonable care in the custody or preservation of the Collateral. Borrower shall have the sole responsibility for taking such action as may be necessary, from time to time, to preserve all rights of Borrower and Lender in the Collateral against prior or third parties. Without limiting the generality of the foregoing, where Collateral consists in whole or in part of securities, Borrower represents to, and covenants with, Lender that Borrower has made arrangements for keeping informed of changes or potential changes affecting the securities (including rights to convert or subscribe, payment of dividends, reorganization or other exchanges, tender offers and voting rights), and Borrower agrees that Lender shall have no responsibility or liability for informing Borrower of any such or other changes or potential changes or for taking any action or omitting to take any action with respect thereto.

6.5 Electronic Chattel Paper and Transferable Records; Student Loan Notes. If Borrower at any time holds or acquires an interest in any electronic chattel paper or any “transferable record”, as that term is defined in Section 201 of the federal Electronic Signatures in Global and National Commerce Act, or in Section 16 of the Uniform Electronic Transactions Act as in effect in any relevant jurisdiction, Borrower shall promptly notify Lender thereof and, at the request of Lender, shall take such action as Lender may reasonably request to vest in Lender control under Section 9-105 of the UCC of such electronic chattel paper or control under Section 201 of the federal Electronic Signatures in Global and National Commerce Act or, as the case may be, Section 16 of the Uniform Electronic Transactions Act (as in effect in such jurisdiction) of such transferable record. Lender agrees with Borrower that Lender will arrange, pursuant to procedures satisfactory to Lender and so long as such procedures will not result in Lender’s loss of control, for Borrower to make alterations to the electronic chattel paper or transferable record permitted under Section 9-105 of the UCC or, as the case may be, Section 201 of the federal Electronic Signatures in Global and National Commerce Act or Section 16 of the Uniform Electronic Transactions Act for a party in control to make without loss of control, unless an Event of Default has occurred and is continuing or would occur after taking into account any action by Borrower with respect to such electronic chattel paper or transferable record.

Except for Student Loans executed electronically, there is only one original executed Student Loan Note evidencing each Student Loan. For Student Loans that were or will be executed electronically, the Servicer has or will have possession of the electronic records evidencing the Student Loan Note. Borrower has or will have in its possession, or Borrower will cause the Servicer to deliver to Lender, a copy of the Student Loan Note that constitutes or evidences each Student Loan. The Student Loan Notes do not have any marks or notations indicating that they have been pledged, assigned or otherwise conveyed to any Person other than Lender. All financing statements filed or to be filed against Borrower in favor of Lender in connection with this Agreement describing the Retained CUSO Interest or any other interest in the Student Loans may contain a statement to the following effect: “A purchase of or security interest in any collateral described in this financing statement will violate the rights of Lender.”

11

Borrower shall cause the Servicer to hold the Student Loan Documents, including any electronic records evidencing the Student Loan Notes, for the benefit of Lender and to maintain such accurate and complete accounts, records and computer systems pertaining to the Student Loan Documents, including any electronic records evidencing the Student Loan Notes, as shall enable Borrower to comply with this Agreement. Borrower shall cause the Servicer to enter into the Bailment Agreement pursuant to which the Servicer shall agree to (i) act with reasonable care, using that degree of skill and attention that the Servicer exercises with respect to the student loan files relating to similar student loans that the Servicer services on behalf of other Persons, (ii) ensure that it fully complies with all applicable federal and state laws, including the Higher Education Act and any applicable e-sign laws, with respect thereto, (iii) take all actions necessary with respect to the Student Loan Documents held by it and of the related accounts, records and computer systems, in order to enable Lender to verify the accuracy of the Servicer’s record keeping with respect to the Servicer’s obligations as custodian, and (iv) promptly report to Borrower and Lender any material failure on its part to hold the Student Loan Documents and maintain its accounts, records and computer systems as herein provided and promptly take appropriate action to remedy any such failure. Nothing herein shall be deemed to require an initial review or any periodic review by Lender of the Student Loan Documents. The Bailment Agreement shall also require that if, in Lender’s reasonable judgment, it is necessary to preserve the interests of Lender in the Student Loans, the Servicer shall transfer physical possession of the Student Loan Notes to Lender or any other custodian designated by Lender.

6.6 Other Actions as to any and all Collateral. Borrower further agrees to take any other action reasonably requested by Lender to insure the attachment, perfection and priority of, and the ability of Lender to enforce, Lender’s security interest in any and all of the Collateral, including (a) authorizing, executing, delivering or, where appropriate, filing financing statements and amendments thereto under the Uniform Commercial Code, (b) causing Lender’s name to be noted as secured party on any certificate of title for a titled good if such notation is a condition to attachment, perfection or priority of, or ability of Lender to enforce, Lender’s security interest in such Collateral, (c) complying with any provision of any statute, regulation or treaty of the United States as to any Collateral if compliance with such provision is a condition to attachment, perfection or priority of, or ability of Lender to enforce, Lender’s security interest in such Collateral, (d) obtaining governmental and other third party consents and approvals (including any consent of any licensor, lessor or other Person obligated on Collateral), (e) obtaining waivers from mortgagees and landlords in form and substance satisfactory to Lender, and (f) taking all actions required by the UCC in effect from time to time or by other law, as applicable in any relevant UCC jurisdiction, or by other law as applicable in any foreign jurisdiction.

7. REPRESENTATIONS AND WARRANTIES.

To induce Lender to make the Loan, Borrower makes the following representations and warranties to Lender, each of which shall be true and correct in all material respects as of the Effective Date, and which shall survive the execution and delivery of this Agreement:

7.1 Borrower Organization and Name. Borrower is a limited liability company duly organized, validly existing and in good standing under the laws of the State of Delaware, with full power and authority to carry on and conduct its business as presently conducted. Borrower’s state issued organizational identification number is 4614327. Borrower is duly licensed or qualified in all foreign jurisdictions wherein the nature of its activities require such qualification or licensing. The exact legal name of Borrower is as set forth in the first paragraph of this Agreement, and Borrower currently does not conduct, nor has it during the last five (5) years conducted, business under any other name or trade name.

12

7.2 Authorization; Validity. Borrower has full right, power and authority to enter into this Agreement, to borrow and incur the Loans and other Obligations and execute and deliver the Loan Documents as provided in this Agreement and to perform all of its duties and obligations under this Agreement and the other Loan Documents. The execution and delivery of this Agreement and the other Loan Documents will not, nor will the observance or performance of any of the matters and things herein or therein violate or contravene any provision of law or of the articles of organization, operating agreement or other organizational documents of Borrower. All necessary and appropriate action has been taken on the part of Borrower to authorize the execution and delivery of this Agreement and the other Loan Documents. This Agreement and the other Loan Documents are valid and binding agreements and contracts of Borrower in accordance with their respective terms.

7.3 Compliance With Laws. The nature and transaction of Borrower’s business and operations and the use of its properties and assets (including the Collateral and any real estate owned or occupied by Borrower) do not and during the term of this Agreement shall not, violate or conflict with, in any material respect, any applicable law, statute, ordinance, rule, regulation or order of any kind or nature, including the provisions of the Fair Labor Standards Act, any zoning, land use, building, noise abatement, occupational health and safety or other laws, any building permit, any condition, grant, easement, covenant, condition or restriction, whether recorded or not, and any state or federal laws, rules or regulations in any way affecting Borrower’s right or ability to purchase, hold or collect on the Student Loans.

7.4 Absence of Breach. The execution, delivery and performance of this Agreement, the Loan Documents and any other documents or instruments to be executed and delivered by Borrower in connection with the Loan shall not (a) violate any provisions of law or any applicable regulation, order, writ, injunction or decree of any court or governmental authority, or (b) conflict with, be inconsistent with, or result in any breach or default of any of the terms, covenants, conditions, or provisions of any indenture, mortgage, deed of trust, instrument, document, agreement or contract of any kind to which Borrower is a party or by which Borrower or any of its property or assets may be bound.

7.5 Collateral Representations. Borrower is the sole owner of the Collateral, free from any Lien of any kind, other than Permitted Liens.

7.6 Financial Statements. All financial statements submitted to Lender have been prepared on a basis, except as otherwise noted therein, consistent with the previous fiscal year and truly and accurately reflect the financial condition of Borrower and the results of the operations for Borrower as of such date and for the periods indicated.

7.7 Litigation and Taxes. There is no litigation, demand, charge, claim, petition or governmental investigation or proceeding pending or, to the best knowledge of Borrower, threatened against Borrower, which, if adversely determined, would result in a Material Adverse Effect. Borrower has duly filed all applicable income or other tax returns and has paid all income or other taxes when due. There is no controversy or objection pending or, to the best knowledge of Borrower, threatened in respect of any tax returns of Borrower.

7.8 Event of Default. No Event of Default has occurred, and no event has occurred that, with the lapse of time, the giving of notice or both, would constitute an Event of Default under this Agreement or any of the other Loan Documents. Borrower is not in default (without regard to grace or cure periods) under any contract or agreement to which it is a party.

7.9 ERISA. Neither Borrower nor any member of the Controlled Group maintains or contributes to any Employee Plan.

13

7.10 Adverse Circumstances. No condition, circumstance, event, agreement, document, instrument, restriction, litigation or proceeding (or threatened litigation or proceeding or basis therefor) exists that (a) could reasonably be expected to adversely affect the validity or priority of the Liens granted to Lender under this Agreement or the other Loan Documents, (b) could reasonably be expected to materially adversely affect the ability of Borrower to perform its obligations under the Loan Documents, (c) would constitute an Event of Default under any of the Loan Documents, or (d) creates or may result in a circumstance or event that, with the lapse of time, the giving of notice or both, would constitute an Event of Default under any of the Loan Documents.

7.11 Lending Relationship. Borrower acknowledges and agrees that the relationship created by this Agreement with Lender is and has been conducted on an open and arm’s length basis in which no fiduciary relationship exists and that Borrower has not relied and is not relying on any such fiduciary relationship in executing this Agreement and in consummating the Loans.

7.12 Business Loan. The Loans, including the interest rate, fees and charges as contemplated by this Agreement, (a) are business loans under New York law, (b) are exempted transactions under the Truth In Lending Act, 12 U.S.C. 1601 et seq., as amended from time to time, and (c) do not, and when disbursed shall not, violate the provisions of any New York usury laws, any consumer credit laws or the usury laws of any state which may have jurisdiction over the transactions described in this Agreement, Borrower or any property securing the Obligations.

7.13 Regulation U. No portion of the proceeds of any Loan shall be used by Borrower or any affiliate of Borrower, either directly or indirectly, for the purpose of purchasing or carrying any margin stock, within the meaning of Regulation U as adopted by the Board of Governors of the Federal Reserve System.

7.14 Governmental Regulation. Borrower and its Subsidiaries are not, or after giving effect to any Loan will not be, subject to regulation under the Public Utility Holding Company Act of 1935, the Federal Power Act or the Investment Company Act of 1940 or to any federal or state statute or regulation limiting its ability to incur indebtedness for borrowed money.

7.15 Bank Accounts. The account numbers and locations of the Distribution Account, the Operating Account and all other deposit accounts and bank accounts of Borrower and its Subsidiaries are attached to this Agreement as Schedule 7.15.

7.16 Place of Business. The principal place of business of Borrower is 8700 Indian Creek Parkway, Suite 120, Overland Park, Kansas 66210 and Borrower shall promptly notify Lender of any change in such location. Borrower will not remove or permit the Collateral to be removed from such location without the prior written consent of Lender.

7.17 Complete Information. This Agreement and all financial statements, schedules, certificates, confirmations, agreements, contracts, and other materials submitted to Lender in connection with or in furtherance of this Agreement by or on behalf of Borrower fully and fairly state the matters with which they purport to deal, and neither misstate any material fact nor, separately or in the aggregate, fail to state any material fact necessary to make the statements made not misleading.

7.18 Books and Records. The books and records of Borrower are in good order, complete, accurate, and up to date.

8. NEGATIVE COVENANTS.

8.1 Indebtedness. Borrower shall not, either directly or indirectly, create, assume, incur or have outstanding any Indebtedness (including purchase money indebtedness), or become liable, whether as endorser, guarantor, surety or otherwise, for any debt or obligation of any other Person, except:

14

(a) the Obligations;

(b) endorsement for collection or deposit of any commercial paper secured in the ordinary course of business;

(c) obligations of Borrower for taxes, assessments, municipal or other governmental charges; and

(d) obligations of Borrower for accrued expenses as accounts payable and incurred in the ordinary course of business.

8.2 Encumbrances. Borrower shall not, either directly or indirectly, create, assume, incur or suffer or permit to exist any Lien or charge of any kind or character upon any asset of Borrower, whether owned on the Effective Date or hereafter acquired except:

(a) Liens for taxes, assessments or other governmental charges not yet due or that are being contested in good faith by appropriate proceedings in such a manner as not to make the property forfeitable;

(b) Liens or charges incidental to the conduct of its business or the ownership of its property and assets that were not incurred in connection with the borrowing of money or the obtaining of an advance or credit, and that do not in the aggregate materially detract from the value of its property or assets or materially impair the use thereof in the operation of its business;

(c) pledges or deposits to secure obligations under worker’s compensation laws or similar legislation;

(d) good faith deposits in connection with leases to which Borrower is a party;

(e) deposits to secure public or statutory obligations of Borrower; and

(f) Liens granted to Lender under this Agreement.

Items (a) through (f) are referred to as “Permitted Liens”.

8.3 Investments. Borrower shall not, either directly or indirectly, make or have outstanding any new investments (whether through purchase of stocks, obligations or otherwise) in, or loans or advances to, any other Person (to avoid doubt, not including Student Loans purchased in the normal course of the Program), or acquire all or any substantial part of the assets, business, stock or other evidence of beneficial ownership of any other Person.

8.4 Transfer; Merger. Borrower shall not either: (i) directly or indirectly, merge, consolidate, sell, transfer, license, lease, encumber or otherwise dispose of all or any part of its property or business or all or any substantial part of its assets; or (ii) except as otherwise permitted under Section 6.2(b) of this Agreement, sell or discount (with or without recourse) any of its interest in the Student Loans or its Retained CUSO Interest; unless, in the case of either clause (i) or clause (ii), (x) Borrower has obtained Lender’s prior written consent or, (y) if no Obligations are then outstanding under this Agreement, Borrower has delivered prior written notice to Lender.

8.5 Issuance of Stock. Other than as expressly permitted under the Program, Borrower shall not, either directly or indirectly, issue or distribute any additional capital stock, membership interests or other securities of Borrower.

8.6 Distributions. So long as any Obligations are outstanding, Borrower shall not, either directly or indirectly, purchase or redeem any membership interests, or declare or pay any dividends or distributions, whether in cash or otherwise, or set aside any funds for any such purpose.

15

8.7 Bank Accounts. Borrower shall not move or change any information with respect to the Distribution Account or the Operating Account or any other account described on Schedule 7.15, and shall not establish any new deposit accounts or other bank accounts, in any such case without the prior written consent of Lender. Notwithstanding the foregoing, Borrower may move any such account to or establish any new account with a Designated Financial Institution (as defined in the Program Agreement) provided that, prior to such account move or establishment, Borrower causes such Designated Financial Institution to enter into an account control agreement with Lender that is acceptable in form and substance to Lender.

8.8 Change of Legal Status. Borrower shall not change its name, its organizational identification number (if it has one), its type of organization, its jurisdiction of organization or other legal structure.

9. AFFIRMATIVE COVENANTS.

9.1 Company Existence. Borrower shall at all times preserve and maintain its existence, rights, franchises and privileges, and shall at all times continue as a going concern in the business that Borrower is presently conducting. If Borrower does not have a state issued identification number and later obtains one, Borrower shall promptly notify Lender of such organizational identification number.

9.2 Maintain Property. Borrower shall at all times maintain and preserve the Collateral in good condition and shall from time to time make all needful and proper renewals, replacements and additions thereto so that at all times the condition thereof shall be fully preserved and maintained. Borrower shall permit Lender to examine and inspect its place of business and properties at all reasonable times.

9.3 Maintain Insurance. Borrower shall at all times maintain insurance with insurance companies acceptable to Lender (i) for all insurable property owned by it that is of a character usually insured by companies similarly situated, insuring against any loss or damage from fire and such other hazards or risks as are customarily insured against by companies similarly situated, and (ii) for employers’, public and professional liability risks. Borrower shall deliver to Lender a certificate setting forth in summary form the nature and extent of the insurance maintained by Borrower pursuant to this Section 9.3. All such policies of insurance must be satisfactory to Lender in relation to the amount and term of the Obligations and type and value of the Collateral and assets of Borrower, and shall identify Lender as loss payee or as an additional insured. If Borrower either fails to provide Lender with evidence of the insurance coverage required by this Section 9.3 or at any time hereafter fails to obtain or maintain any of the policies of insurance required above, or if Borrower fails to pay any premium in whole or in part relating thereto, then Lender, without waiving or releasing any obligation or default by Borrower under this Agreement, may at any time (but has no obligation to) obtain and maintain such policies of insurance and pay such premium and take any other action with respect thereto that Lender deems advisable. Such insurance coverage obtained by Lender (a) may but need not protect Borrower’s interest in such property and (b) may not pay any claim made by or against Borrower in connection with such property. Borrower may later cancel any such insurance purchased by Lender, but only after providing Lender with evidence that Borrower has obtained the insurance coverage required by this Section 9.3. The costs of such insurance obtained by Lender through and including the effective date such insurance coverage is canceled or expires (which may be greater than the cost of insurance that Borrower may be able to obtain on its own), together with any other charges incurred by Lender in connection with the placement of such insurance, and together with interest thereon at the Default Rate on such amounts until repaid, shall be part of the Obligations payable under this Agreement and shall be payable on demand by Borrower to Lender.

16

9.4 Tax Liabilities. Borrower shall at all times pay and discharge all property and other taxes, assessments and governmental charges upon, and all claims (including claims for labor, materials and supplies) against Borrower or any of its properties, in each case before any such amount becomes delinquent and before penalties accrue thereon.

9.5 ERISA Liabilities; Employee Plans. Borrower shall not maintain, or permit any member of the Controlled Group to maintain, or become obligated to contribute, or permit any member of the Controlled Group to become obligated to contribute, to any Employee Plan.

9.6 Financial Statements. Borrower shall at all times maintain a standard system of accounting, on the accrual basis of accounting, and shall furnish to Lender or his authorized representatives such information regarding the business affairs, operations and financial condition of Borrower, including:

(a) as soon as available, and in any event, within ninety (90) days after the close of each of its fiscal years, a copy of the annual reviewed financial statements of Borrower, including balance sheet, statement of income and retained earnings, statement of cash flows for the fiscal year then ended and such other information (including nonfinancial information) as Lender may request, in reasonable detail, prepared and certified by an independent certified public accountant acceptable to Lender;

(b) as soon as available, and in any event, within forty-five (45) days following the end of each quarter, a copy of the financial statements of Borrower regarding such quarter, including balance sheet, statement of income and retained earnings, and statement of cash flows for such quarter; and

(c) as soon as available, and in any event, within forty-five (45) days following the end of each quarter, a detailed and itemized report of all income received and expenses paid or incurred by Borrower during such quarter (including a detailed description of the use of all Operating Expense Advances), a detailed and itemized report of all assets and liabilities of Borrower as of the end of such quarter, and such other information (including non-financial information) as Lender may request, in each case prepared in detail and certified as accurate by Borrower.

No change with respect to such accounting principles shall be made by Borrower without giving prior notification to Lender. Borrower represents and warrants to Lender that the financial statements delivered to Lender at or prior to the execution and delivery of this Agreement and to be delivered at all times after the Effective Date accurately reflect and will accurately reflect the financial condition of Borrower. Lender shall have the right at all times during business hours to inspect the books and records of Borrower and make extracts therefrom. Borrower agrees to advise Lender immediately of any adverse change in the financial condition, the operations or any other status of Borrower.

9.7 Supplemental Financial Statements. Borrower shall promptly upon receipt thereof, provide to Lender copies of interim and supplemental reports if any, submitted to Borrower by independent accountants in connection with any interim audit or review of the books of Borrower.

9.8 Field Audits. Borrower shall allow Lender, at Borrower’s sole expense, to conduct a quarterly field examination of Borrower’s business operations, the results of which must be satisfactory to Lender in Lender’s sole and absolute discretion.

9.9 Other Reports. Borrower shall, within such period of time as Lender may specify, deliver to Lender such other schedules and reports as Lender may reasonably require.

9.10 Collateral Records. Borrower shall keep full and accurate books and records relating to the Collateral and shall mark such books and records to indicate Lender’s Lien in the Collateral.

17

9.11 Notice of Proceedings. Borrower shall, promptly after knowledge thereof comes to its attention, give written notice to Lender of all threatened or pending actions, suits, and proceedings before any court or governmental department, commission, board or other administrative agency which may have a Material Adverse Effect.

9.12 Notice of Default. Borrower shall, promptly after the occurrence or commencement thereof, give notice to Lender in writing of the occurrence of an Event of Default or of any event that, with the lapse of time, the giving of notice or both, would constitute an Event of Default under this Agreement.

10. EVENTS OF DEFAULT.

Borrower, without notice or demand of any kind, shall be in default under this Agreement upon the occurrence of any of the following events (each an “Event of Default”):

(a) any amount due and owing on the Note or any of the Obligations, whether by its terms or as otherwise provided in this Agreement, is not paid when due;

(b) any written warranty, representation, certificate or statement in this Agreement, the Loan Documents or any other agreement with Lender is or becomes false in any material respect and, if capable of being cured, continues unremedied for a period of thirty (30) days;

(c) any failure to perform or default in the performance of any covenant, condition or agreement contained: (i) in this Agreement (other than as described in Section 10(a) above) and, if capable of being cured, such failure to perform or default in performance continues for a period of thirty (30) days after the required date of performance; or (ii) in the other Loan Documents (all of the covenants, conditions and agreements contained therein being incorporated in this Agreement by reference) or any other agreement with Lender and such failure to perform or default in performance continues beyond any applicable grace or cure period;

(d) any default occurs in the payment of principal, interest or any other sum greater than $10,000.00 in connection with any other obligation of Borrower or in the performance of any other term, condition or covenant contained in any agreement to which Borrower or its property is subject (which default continues beyond any grace or cure period provided with respect thereto), the effect of which default is to cause or permit the holder of such obligation or the other party to such other agreement to cause such obligation to become due prior to its stated maturity or to terminate such other agreement;

(e) Borrower or any other Obligor makes an assignment for the benefit of creditors, fails to pay, or admits in writing its inability to pay its debts as they mature; or a trustee of any substantial part of the assets of Borrower or any other Obligor is applied for or appointed;

(f) any proceeding involving Borrower or any other Obligor is commenced by or against such Person under any bankruptcy, reorganization, arrangement, insolvency, readjustment of debt, dissolution or liquidation law or statute of the federal government or any state government;

(g) the entry of any one or more judgments, decrees, levies, attachments, garnishments or other process involving more than $10,000.00 in the aggregate in any calendar year, or the filing of any Lien against Borrower or any other Obligor that is not fully covered by insurance or not removed within thirty (30) days after first becoming a Lien;

(h) the entry of any judgment, decree, levy, attachment, garnishment or other process, or the filing of any Lien, against any of the Collateral or any collateral under a separate security agreement securing any of the Obligations, the loss, theft, destruction, seizure or forfeiture, or the occurrence of any deterioration or impairment of any of the Collateral or any of the collateral under any security agreement securing any of the Obligations, or any decline or depreciation in the value or market price thereof (whether actual or reasonably anticipated), which in any such case causes the Collateral, in the reasonable opinion of Lender acting in good faith, to become unsatisfactory as to value or character or causes Lender to reasonably believe that it is insecure and that the likelihood for repayment of the Obligations is or will soon be impaired, time being of the essence; the cause of any such deterioration, impairment, decline or depreciation includes the failure by Borrower to do any act deemed necessary by Lender to preserve and maintain the value and collectability of the Collateral; or

(i) the occurrence of any Material Adverse Effect.

18

11. REMEDIES.

Upon the occurrence of an Event of Default, Lender shall have all rights, powers and remedies set forth in this Agreement and the other Loan Documents, in any written agreement or instrument (in addition to this Agreement and the other Loan Documents) relating to any of the Obligations or any security therefor, or as otherwise provided at law or in equity. Without limiting the generality of the foregoing, (i) Lender may, at its option upon the occurrence of an Event of Default, declare all Obligations to be immediately due and payable, and (ii) upon the occurrence of an Event of Default under either Section 10(e) or Section 10(f), all Obligations shall be automatically due and payable (and to avoid doubt, any alleged commitment of Lender to Borrower shall immediately terminate), all without demand, notice or further action of any kind required on the part of Lender. Borrower waives any and all presentment, demand, notice of dishonor, protest, and all other notices and demands in connection with the enforcement of Lender’s rights under this Agreement and the other Loan Documents, and consents to, and waives notice of release, with or without consideration, of any Collateral, notwithstanding anything contained in this Agreement or in the other Loan Documents to the contrary. In addition to the foregoing:

11.1 Possession and Assembly of Collateral. Lender may, without notice, demand or legal process of any kind, take possession of any or all of the Collateral (in addition to Collateral of which Lender already has possession), wherever it may be found, and for that purpose may pursue the Collateral wherever it may be found, and may enter into any of Borrower’s premises where any of the Collateral may be or is supposed to be, and search for, take possession of, remove, keep and store any of the Collateral until it is sold or otherwise disposed of. At Lender’s request, Borrower will (at Borrower’s sole expense) assemble the Collateral and make it available to Lender at a place or places to be designated by Lender that is reasonably convenient to Lender and Borrower.

11.2 Sale of Collateral. Lender may sell any or all of the Collateral at public or private sale, upon such terms and conditions as Lender may deem proper, and Lender may purchase any or all of the Collateral at any such sale. Lender may apply the net proceeds, after deducting all costs and expenses (including all attorneys’ fees and expenses) incurred or paid at any time in the collection, protection and sale of the Collateral and the Obligations, to the payment of the Note or any of the other Obligations, returning the excess proceeds (if any) to Borrower. Borrower shall remain liable for any amount remaining unpaid after such application, together with interest accruing thereon as provided in this Agreement. Any notification of intended disposition of the Collateral required by law shall be conclusively deemed reasonably and properly given if given by Lender at least ten (10) calendar days before the date of such disposition. Borrower confirms, approves and ratifies all acts and deeds of Lender relating to the foregoing, and each part thereof.

11.3 Standards for Exercising Remedies. To the extent that applicable law imposes duties on Lender to exercise remedies in a commercially reasonable manner, Borrower acknowledges and agrees that it is not commercially unreasonable for Lender (a) to fail to incur expenses reasonably deemed significant by Lender to prepare Collateral for disposition or otherwise to complete raw material or work-in-process into finished goods or other finished products for disposition, (b) to fail to obtain third party consents for access to Collateral to be disposed of, or to obtain or, if not required by other law, to fail to obtain governmental or third party consents for the collection or disposition of Collateral to be collected or disposed of, (c) to fail to exercise collection remedies against account debtors or other Persons obligated on Collateral or to remove liens or encumbrances on or any adverse claims against Collateral, (d) to exercise collection remedies against account debtors and other Persons obligated on Collateral directly or through the use of collection agencies and other collection specialists, (e) to advertise dispositions of Collateral through publications or media of general circulation, whether or not the Collateral is of a specialized nature, (f) to contact other Persons, whether or not in the same business as Borrower, for expressions of interest in acquiring all or any portion of the Collateral, (g) to hire one or more professional auctioneers to assist in the disposition of Collateral, whether or not the collateral is of a specialized nature, (h) to dispose of Collateral by utilizing Internet sites that provide for the auction of assets of the types included in the Collateral or that have the reasonable capability of doing so, or that match buyers and sellers of assets, (i) to dispose of assets in wholesale rather than retail markets, (j) to disclaim disposition warranties, including any warranties of title, (k) to purchase insurance or credit enhancements to protect Lender against risks of loss, collection or disposition of Collateral or to provide to Lender a guaranteed return from the collection or disposition of Collateral, or (1) to obtain the services of brokers, investment bankers, consultants and other professionals to assist Lender in the collection or disposition of any of the Collateral. Borrower acknowledges that the purpose of this Section 11.3 is to provide non-exhaustive indications of what actions or omissions by Lender would not be commercially unreasonable in Lender’s exercise of remedies against the Collateral and that other actions or omissions by Lender shall not be deemed commercially unreasonable solely on account of not being indicated in this Section 11.3. Without limiting the foregoing, nothing contained in this Section 11.3 shall be construed to grant any rights to Borrower or to impose any duties on Lender that would not have been granted or imposed by this Agreement or by applicable law in the absence of this Section 11.3.

19

11.4 UCC and Offset Rights. Lender may exercise, from time to time, any and all rights and remedies available to Lender under the UCC or under any other applicable law in addition to, and not in lieu of, any rights and remedies expressly granted in this Agreement or in any other agreements between any Obligor and Lender. Without limiting Section 2.1(c)(iii)(E), Lender may, without demand or notice of any kind, appropriate and apply toward the payment of the Obligations, whether matured or unmatured, and in such order of application as Lender may from time to time elect, any indebtedness of Lender to Borrower or any other Obligor, however created or arising, including balances, credits, deposits, accounts or moneys in the possession, control or custody of, or in transit to, Lender. Borrower, on behalf of itself and each Obligor, waives the benefit of any law that would otherwise restrict or limit Lender in the exercise of its acknowledged right to appropriate at any time hereafter any such indebtedness owing from Lender.

11.5 Additional Remedies. Without limiting the foregoing, Lender may and has the right to:

(a) instruct Borrower, at Borrower’s expense, to notify any parties obligated on any of the Collateral to make payment directly to Lender of any amounts due or to become due thereunder, or Lender may directly notify such obligors of the security interest of Lender or of the assignment to Lender of the Collateral and direct such obligors to make payment to Lender of any amounts due or to become due with respect thereto, and thereafter, collect any such amounts due on the Collateral directly from such Persons obligated thereon;

(b) enforce collection of any of the Collateral by suit or otherwise, or make any compromise or settlement with respect to any of the Collateral, or surrender, release or exchange all or any part thereof, or compromise, extend or renew for any period (whether or not longer than the original period) any indebtedness thereunder;

(c) take possession or control of any proceeds and products of any of the Collateral, including the proceeds of insurance thereon;

20

(d) extend, renew or modify for one or more periods (whether or not longer than the original period) the Note, any of the other Obligations, any obligation of any nature of any other Obligor with respect to the Note or any of the Obligations;

(e) grant releases, compromises or indulgences with respect to the Note, any of the Obligations, any extension or renewal of any of the Obligations, any security therefor, or to any other Obligor with respect to the Note or any of the Obligations;

(f) transfer the whole or any part of any securities constituting Collateral into the name of Lender or Lender’s nominee without disclosing, if Lender so desires, that such securities so transferred are subject to the security interest of Lender, and any corporation, association, or any of the managers or trustees of any trust issuing any of such securities, or any transfer agent, shall not be bound to inquire, if Lender or such nominee makes any further transfer of all or portion of such securities, as to whether Lender or such nominee has the right to make such further transfer, and shall not be liable for transferring such securities;

(g) vote the Collateral;

(h) make an election with respect to the Collateral under Section 1111 of the Bankruptcy Code or take action under Section 364 or any other section of the Bankruptcy Code; except that any such action of Lender shall not, in any manner whatsoever, impair or affect the liability of Borrower under this Agreement or prejudice, waive or be construed to impair, affect, prejudice or waive, Lender’s rights and remedies at law, in equity or by statute, or release, discharge or be construed to release or discharge, Borrower or any Obligor liable to Lender for the Obligations; and

(i) at any time, and from time to time, accept additions to, releases, reductions, exchanges or substitution of the Collateral, without in any way altering, impairing, diminishing or affecting the provisions of this Agreement, the other Loan Documents, any of the Obligations, or Lender’s rights under this Agreement, the Note or any of the Obligations.

Borrower ratifies and confirms whatever Lender may do with respect to the Collateral and agrees that Lender shall not be liable for any error of judgment or mistakes of fact or law with respect to actions taken in connection with the Collateral.

11.6 No Marshaling. Lender shall not be required to marshal any present or future collateral security (including this Agreement and the Collateral) for, or other assurances of payment of, the Obligations or any of them or to resort to such collateral security or other assurances of payment in any particular order. To the extent that it lawfully may, Borrower agrees that it will not invoke any law relating to the marshaling of collateral which might cause delay in or impede the enforcement of Lender’s rights under this Agreement or under any other instrument creating or evidencing any of the Obligations or under which any of the Obligations is outstanding or by which any of the Obligations is secured or payment thereof is otherwise assured, and, to the extent that it lawfully may, Borrower irrevocably waives the benefits of all such laws.

11.7 Application of Proceeds. Lender will, within three (3) Business Days after receipt of cash or solvent credits from collection of items of payment, proceeds of Collateral or any other source, apply the whole or any part thereof against the Obligations. Lender shall further have the exclusive right to determine how, when and what application of such payments and such credits shall be made on the Obligations, and such determination shall be conclusive upon Borrower. Any proceeds of any disposition by Lender of all or any part of the Collateral may be first applied by Lender to the payment of expenses incurred by Lender in connection with the Collateral, including attorneys’ fees and legal expenses as provided for in Section 12 of this Agreement.

21

11.8 No Waiver. No Event of Default shall be waived by Lender except in writing. No failure or delay on the part of Lender in exercising any right, power or remedy under this Agreement shall operate as a waiver of the exercise of the same or any other right at any other time; nor shall any single or partial exercise of any such right, power or remedy preclude any other or further exercise thereof or the exercise of any other right, power or remedy under this Agreement. There shall be no obligation on the part of Lender to exercise any remedy available to Lender in any order. The remedies provided for in this Agreement are cumulative and not exclusive of any remedies provided at law or in equity. Borrower agrees that in the event that Borrower fails to perform, observe or discharge any of its Obligations or liabilities under this Agreement or any other agreements with Lender, no remedy of law will provide adequate relief to Lender, and further agrees that Lender shall be entitled to temporary and permanent injunctive relief in any such case without the necessity of proving actual damages.

12. MISCELLANEOUS.

12.1 Obligations Absolute. None of the following shall affect the Obligations of Borrower to Lender under this Agreement or Lender’s rights with respect to the Collateral:

(a) acceptance or retention by Lender of other property or any interest in property as security for the Obligations;

(b) release by Lender of Borrower or of all or any part of the Collateral or of any party liable with respect to the Obligations;

(c) release, extension, renewal, modification or substitution by Lender of the Note, or any note evidencing any of the Obligations, or the compromise of the liability of any other Obligor of the Obligations;

(d) failure of Lender to resort to any other security or to pursue Borrower or any other Obligor before resorting to remedies against the Collateral, or to pursue any of the Collateral or any other property before pursuing Borrower; or

(e) failure of Lender to perform any of its obligations under any of the Program Documents.

12.2 Entire Agreement. This Agreement and the other Loan Documents (a) are valid, binding and enforceable against Borrower and Lender in accordance with its provisions and no conditions exist as to their legal effectiveness, (b) constitute the entire agreement between the parties and (c) are the final expression of the intentions of Borrower and Lender. No promises, either expressed or implied, exist between Borrower and Lender, unless contained in this Agreement or the other Loan Documents. This Agreement and the other Loan Documents supersede all negotiations, representations, warranties, commitments, offers and contracts (of any kind or nature, whether oral or written) with respect to the subject matter hereof prior to or contemporaneous with the execution of this Agreement and the other Loan Documents.

12.3 Amendments; Waivers. No amendment, modification, termination, discharge or waiver of any provision of this Agreement or of the other Loan Documents, or consent to any departure by Borrower therefrom, shall in any event be effective unless delivered in writing and signed by Lender, and then such waiver or consent shall be effective only for the specific purpose for which given.

Lender’s failure, at any time or times on or after the Effective Date, to require strict performance by Borrower of any provision of this Agreement or any other Loan Document shall not waive, affect or diminish any right of Lender thereafter to demand strict compliance and performance therewith. Any suspension or waiver by Lender of a default or an Event of Default under this Agreement or any other Loan Document shall not suspend, waive or affect any other default or Event of Default under this Agreement or any of the other Loan Documents, whether such suspension or waiver is prior or subsequent thereto and whether of the same or of a different type. Without limiting the foregoing, none of the undertakings, agreements, warranties, covenants and representations of Borrower contained in this Agreement or any of the other Loan Documents and no default or Event of Default shall be deemed to have been suspended or waived by Lender unless such suspension or waiver is by an instrument in writing specifying such suspension or waiver and is signed by a duly authorized representative of Lender and directed to Borrower.

22

12.4 Waiver of Jury Trial. LENDER AND BORROWER, AFTER CONSULTING WITH COUNSEL, EACH KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE THE RIGHT TO TRIAL BY JURY WITH RESPECT TO ANY LEGAL PROCEEDING BASED ON THIS AGREEMENT, OR ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT, THE NOTE OR ANY OF THE OBLIGATIONS, THE COLLATERAL, OR ANY OTHER AGREEMENT EXECUTED OR CONTEMPLATED TO BE EXECUTED IN CONJUNCTION WITH THIS AGREEMENT, OR ANY COURSE OF CONDUCT OR COURSE OF DEALING IN WHICH LENDER AND BORROWER ARE ADVERSE PARTIES. THIS PROVISION IS A MATERIAL INDUCEMENT FOR LENDER GRANTING ANY FINANCIAL ACCOMMODATION TO BORROWER.

12.5 Litigation. TO INDUCE LENDER TO MAKE THE LOANS, BORROWER AGREES THAT ALL ACTIONS ARISING, DIRECTLY OR INDIRECTLY, AS A RESULT OR CONSEQUENCE OF THIS AGREEMENT, THE NOTE, ANY OTHER AGREEMENT WITH LENDER OR THE COLLATERAL, MAY BE INSTITUTED AND LITIGATED IN COURTS HAVING THEIR SITUS IN HAMILTON COUNTY, INDIANA. BORROWER CONSENTS TO THE NON-EXCLUSIVE JURISDICTION AND VENUE OF ANY STATE COURT HAVING ITS SITUS IN SUCH COUNTY OR ANY FEDERAL COURT THAT HAS JURISDICTION OVER SUCH COUNTY, AND WAIVES ANY OBJECTION BASED ON FORUM NON CONVENIENS. BORROWER WAIVES PERSONAL SERVICE OF ANY AND ALL PROCESS AND CONSENTS THAT ALL SUCH SERVICE OF PROCESS MAY BE MADE BY CERTIFIED MAIL, RETURN RECEIPT REQUESTED, DIRECTED TO BORROWER, AS SET FORTH IN THIS AGREEMENT IN THE MANNER PROVIDED BY APPLICABLE STATUTE, LAW, RULE OF COURT OR OTHERWISE. BORROWER AGREES NOT TO INSTITUTE ANY LEGAL ACTION OR PROCEEDING AGAINST LENDER OR THE AGENTS OR PROPERTY THEREOF, IN ANY COURT OTHER THAN THE ONE SPECIFIED ABOVE IN THIS SECTION 12.5. NOTHING IN THIS SECTION 12.5 SHALL AFFECT THE RIGHT OF LENDER TO SERVE LEGAL PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR AFFECT THE RIGHT OF LENDER TO BRING ANY ACTION OR PROCEEDING AGAINST BORROWER OR ITS PROPERTY IN THE COURTS OF ANY OTHER JURISDICTIONS.

12.6 Assignability. Lender may at any time assign Lender’s rights in this Agreement, the Note, the Obligations, or any part thereof and transfer Lender’s rights in any or all of the Collateral, and Lender thereafter shall be relieved from all liability with respect to such Collateral. In addition, Lender may at any time sell one or more participations in the Loan. Borrower may not sell or assign this Agreement, or any other agreement with Lender or any portion thereof, either voluntarily or by operation of law, without the prior written consent of Lender. This Agreement shall be binding upon Lender and Borrower and their respective legal representatives and successors. All references in this Agreement to Borrower shall be deemed to include any successors, whether immediate or remote.

12.7 Binding Effect. This Agreement shall become effective as of the Effective Date upon execution by Borrower and Lender. If this Agreement is not dated or contains any blanks when executed by Borrower, Lender is authorized, without notice to Borrower, to complete any such date or blanks according to the terms upon which this Agreement is executed.

12.8 Governing Law. This Agreement, the Loan Documents and the Note shall be delivered and accepted in and shall be deemed to be contracts made under and governed by the internal laws of the State of New York and for all purposes shall be construed in accordance with the laws of such State, without giving effect to the choice of law provisions of such State (other than Sections 5-1401 and 5-1402 of the New York General Obligations Law).

23

12.9 Enforceability. Wherever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement shall be prohibited by or unenforceable or invalid under any such law, such provision shall be severable and be ineffective to the extent of such prohibition or invalidity, without invalidating the remaining provisions of this Agreement or affecting the validity or enforceability of such provision in any other jurisdiction.

12.10 Survival of Borrower Representations. All covenants, agreements, representations and warranties made by Borrower in this Agreement shall, notwithstanding any investigation by Lender, be deemed material and relied upon by Lender and shall survive the making and execution of this Agreement and the other Loan Documents and the issuance of the Note, and shall be deemed to be continuing representations and warranties until such time as Borrower has fulfilled all of its Obligations to Lender. Lender, in extending financial accommodations to Borrower, is expressly acting and relying on such covenants, agreements, representations and warranties.

12.11 Time of Essence. Time is of the essence in making payments of all amounts due Lender under this Agreement and in the performance and observance by Borrower of each covenant, agreement, provision and term of this Agreement.

12.12 Counterparts. This Agreement may be executed in any number of counterparts and by different parties to this Agreement in separate counterparts, each of which when so executed and delivered shall be deemed to be an original and all of which taken together shall constitute one and the same instrument.

12.13 Signatures. Lender is authorized to rely upon and accept as an original this Agreement, any other Loan Documents or any other communication sent to Lender by facsimile, telegraphic or other electronic transmission (each, a “Communication”) that Lender in good faith believes has been signed by Borrower and has been delivered to Lender by a properly authorized representative of Borrower, whether or not that is in fact the case. Notwithstanding the foregoing, Lender shall not be obligated to accept any such Communication as an original and may in any instance require that an original document be submitted to Lender in lieu of, or in addition to, any such Communication.

12.14 Notices. All notices, requests, demands and other communications provided for under this Agreement shall be in writing, sent by nationally recognized overnight courier or by facsimile or electronic mail (with a follow-up copy sent by nationally recognized overnight courier) or delivered in person, and addressed as follows:

If to Borrower:	Student CU Connect CUSO, LLC
	8700 Indian Creek Parkway, Suite 120 Overland Park, KS 66210 Attn: Board of Managers Fax: 913-322-3770 Email: tferris@rochdalegroup.com
If to Lender:	ITT Educational Services, Inc.
	13000 North Meridian Street Carmel, IN 46032-1404 Attn: Chief Financial Officer Fax: 317-706-9254 Email: dfitzpatrick@ittesi.com

24

or, as to each party, at such other address as shall be designated by such party in a written notice to each other party complying as to delivery with the terms of this Section 12.14. No notice to or demand on Borrower in any case shall entitle Borrower to any other or further notice or demand in similar or other circumstances.

12.15 Indemnification; Documentation Costs; Reimbursement of Expenses. Borrower agrees to defend (with counsel satisfactory to Lender), protect and indemnify each Indemnified Party from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, claims, costs, expenses and distributions of any kind or nature (including disbursements to and the reasonable fees of counsel for each Indemnified Party, which shall also include attorneys’ fees) imposed on, incurred by or asserted against any Indemnified Party (whether direct, indirect or consequential and whether based on any federal, state or local laws or regulations (including securities, environmental laws and commercial laws and regulations), under common law or in equity, or based on contract or otherwise) in any manner relating to or arising out of this Agreement or any of the other Loan Documents, or any act, event or transaction related or attendant thereto, the preparation, execution and delivery of this Agreement and the other Loan Documents (including the making or issuance and management of the Loans, the use or intended use of the proceeds of the Loans), or the enforcement of Lender’s rights and remedies under this Agreement, the Note, the other Loan Documents, any other instruments and documents delivered under this Agreement, or any other agreement between Borrower and Lender; provided, however, that Borrower shall not have any obligations under this Agreement to any Indemnified Party with respect to matters caused by or resulting from the willful misconduct or gross negligence of such Indemnified Party. To the extent that the undertaking to indemnify set forth in the preceding sentence may be unenforceable because it violates any law or public policy, Borrower shall satisfy such undertaking to the maximum extent permitted by applicable law. Any liability, obligation, loss, damage, penalty, cost or expense covered by this indemnity shall be paid to each Indemnified Party on demand and, failing prompt payment, shall, together with interest thereon at the Default Rate from the date incurred by each Indemnified Party until paid by Borrower, be added to the Obligations of Borrower and be secured by the Collateral.

Without limiting the foregoing:

(i) Borrower further agrees that all of Lender’s expenses incurred in connection with the negotiation and documentation of this Agreement and the other Loan Documents, shall be added to and become part of the initial Obligations under the Note, this Agreement and the other Loan Documents (without any actual disbursement to Borrower) and shall accrue interest as provided in this Agreement and be secured by the Collateral.

(ii) If, at any time or times prior or subsequent to the Effective Date, regardless of whether or not an Event of Default then exists or any of the transactions contemplated hereunder are concluded, Lender employs counsel for advice or other representation, or incurs legal or accountants’, auditors’, appraisers’, liquidators’, engineers’, or other consultant or expert expenses or other costs or out-of-pocket expenses (including support staff costs, amounts expended in litigation preparation, computerized research costs, telephone and facsimile expenses, mileage costs, deposition related expenses, postage costs, photocopy costs, process service fees, and costs of videotapes) in connection with: (a) the negotiation, preparation, execution or delivery any amendment of or modification of this Agreement or any of the other Loan Documents, or any sale or attempted sale of any interest in this Agreement to a participating lender or other Person; (b) the administration or enforcement of the Loans, (c) any litigation, contest, dispute, suit, proceeding or action (whether instituted by Lender, Borrower or any other Person) in any way relating to the Collateral, this Agreement, any of the other Loan Documents or Borrower’s affairs, including in connection with any bankruptcy, reorganization, insolvency, or receivership proceeding; (d) any attempt to enforce any rights of Lender against Borrower or any other Person that may be obligated to Lender by virtue of this Agreement or any of the other Loan Documents, irrespective of whether litigation is commenced in pursuit of such rights; or (e) any attempt to inspect, verify, protect, preserve, restore, collect, sell, manufacture, liquidate or otherwise dispose of or realize upon the Collateral or any of Borrower’s assets that do not constitute Collateral (all of which are, collectively, “Expenses”); then, in any such event, such Expenses (whether incurred before or after judgment) shall be payable, on demand, by Borrower to Lender and shall be additional Obligations under this Agreement secured by the Collateral. Additionally, if any taxes (excluding taxes imposed upon or measured by the income of Lender) shall be payable on account of the execution or delivery of this Agreement or the other Loan Documents, or the execution, delivery, issuance or recording of any of the Loan Documents, or the creation of any of the Obligations hereunder, by reason of any federal, state or local statute or other law existing on or after the Effective Date, then Borrower shall pay all such taxes (including any interest and penalties thereon) and shall indemnify Lender from and against liability in connection therewith.

25

The provisions of this Section 12.15 shall survive the satisfaction and payment of the other Obligations and the termination of this Agreement.

12.16 USA Patriot Act. Borrower represents and warrants to Lender that neither Borrower nor any affiliate is identified in any list of known or suspected terrorists published by any United States government agency (collectively, as such lists may be amended or supplemented from time to time, the “Blocked Persons Lists”), including: (a) the annex to Executive Order 13224 issued on September 23, 2001, and (b) the Specially Designated Nationals List published by the Office of Foreign Assets Control.

If Borrower becomes aware that it or any of its affiliates is identified on any Blocked Persons List, Borrower shall immediately notify Lender in writing of such information. Borrower further agrees that in the event it or any of its affiliates is at any time identified on any Blocked Persons List, such event shall be an immediate Event of Default (without notice or demand or any other action by Lender) and shall entitle Lender to exercise any and all remedies provided in this Agreement or any other Loan Document or otherwise permitted by law. In addition, Lender may immediately contact the Office of Foreign Assets Control and any other government agency Lender deems appropriate in order to comply with its obligations under any law, regulation, order or decree regulating or relating to terrorism or money laundering.

12.17 Lender’s Decision Power. Wherever Lender’s judgment, consent, or approval is required, under this Agreement or any other Loan Document for any matter or thing, or Lender has an option, election, or right of determination hereunder or thereunder, including any right to determine that something is acceptable or satisfactory or not (“Decision Power”), such Decision Power shall be exercised in the sole and absolute discretion of Lender unless otherwise expressly stated to be reasonably exercised. Such Decision Power and each other power granted to Lender in this Agreement or any other Loan Document may be exercised by Lender or by any authorized agent of Lender (including any servicer or attorney-in-fact), and Borrower hereby expressly agrees to recognize the exercise of such Decision Power by such authorized agent.

12.18 Members not Liable. Lender acknowledges and agrees that all Obligations under this Agreement are debts of the Borrower and that the credit union members of Borrower are not individually liable for the Obligations under this Agreement.

[Remainder of page left intentionally blank; signature page follows.]

26

IN WITNESS WHEREOF, Borrower and Lender have executed this Agreement as of the Effective Date.

BORROWER:
STUDENT CU CONNECT CUSO, LLC, a Delaware limited liability company
By:	/s/ Dan Kampen
	Name: Dan Kampen
	Title: Program Administrator

LENDER:
ITT EDUCATIONAL SERVICES, INC., a Delaware corporation
By:	/s/ Kevin M. Modany
	Name: Kevin M. Modany
	Title: Chairman & CEO

27

SCHEDULE 5

to

Loan and Security Agreement

DESIGNATED BORROWER REPRESENTATIVES

Tony Ferris, Partner

Joe Karlin, Principal

Jeff Owen, Senior Associate

SCHEDULE 7.15

to

Loan and Security Agreement

BANK ACCOUNTS

Institution:	Account #:	Account Name:
Eli Lilly Federal Credit Union	1217851	Student CU Connect CUSO, LLC, Operating Account
Eli Lilly Federal Credit Union	1223003	Student CU Connect CUSO, LLC, Distribution Account

No other accounts.

FIRST AMENDMENT TO LOAN AND SECURITY AGREEMENT

This FIRST AMENDMENT TO LOAN AND SECURITY AGREEMENT (this “Amendment”) is made effective as of December 30, 2009 (the “Effective Date”) between STUDENT CU CONNECT CUSO, LLC, a Delaware limited liability company (“Borrower”), and ITT EDUCATIONAL SERVICES, INC., a Delaware corporation (“Lender”).

RECITALS

The following recitals are a material part of this Amendment:

A. Borrower and Lender entered into a revolving credit facility as evidenced by that certain Loan and Security Agreement dated as of May 18, 2009 (as amended, modified, supplemented, restated, or renewed, from time to time, the “Loan Agreement”) between Borrower and Lender, and additional instruments and agreements between Borrower and Lender, including that certain Revolving Note dated as of May 18, 2009 made by Borrower in favor of Lender in the maximum principal amount of $300,000,000.00 (as amended, modified, supplemented, restated, or renewed, from time to time, the “Note”).

B. Borrower and Lender have agreed to, among other things, modify the interest rate under the credit facility by amending the Loan Agreement and the Note pursuant to this Amendment and that certain First Amendment Allonge to Revolving Note dated as of the Effective Date (the “Allonge”) and executed contemporaneously with this Amendment.

C. Lender is willing to amend the Loan Agreement and the Note upon and subject to the terms, provisions and conditions set forth in this Amendment and the Allonge.

AGREEMENT

In consideration of the mutual promises contained in this Amendment and for other good and valuable consideration, the receipt and sufficiency of which are acknowledged, the parties to this Amendment mutually agree as follows:

SECTION 1. DEFINED TERMS. All capitalized terms used but not otherwise defined in this Amendment have the meaning set forth in the Loan Agreement.

SECTION 2. ACKNOWLEDGMENT OF INDEBTEDNESS. Borrower and Lender hereby acknowledge and agree that, as of the Effective Date, the outstanding balance(including accrued interest) of $13,287,661.11 is due and owing under the Note. Borrower unconditionally and irrevocably acknowledges that the obligations evidenced by the Loan Documents are enforceable against it in accordance with the terms thereof, and unconditionally and irrevocably waives any and all defenses, claims or setoffs affecting any of the obligations which may have existed or arisen (or which are based on facts or circumstances actually or allegedly existing) prior to the Effective Date (except for mathematical or clerical errors proven to the reasonable satisfaction of Lender, for which any remedies in favor of Borrower shall be limited to the correction of such mathematical or clerical error).

SECTION 3. AMENDMENTS TO LOAN AGREEMENT. The Loan Agreement is amended so that all of the terms and provisions of this Amendment, including all terms defined in this Amendment, are incorporated and integrated into, and made a material part of, the Loan Agreement as if fully set forth therein. In addition, the definition of “Interest Rate” in Section 1.1 of the Loan Agreement is deleted entirely and replaced with the following:

“Interest Rate”: The per annum rate equal to the Prime Rate plus 225/100 percent (2.25%) per annum.

SECTION 4. RATIFICATION AND REAFFIRMATION OF THE LOAN DOCUMENTS; FURTHER ASSURANCES.

4.1 Except as expressly modified in this Amendment and the Allonge, Borrower ratifies, affirms and confirms the terms, covenants and provisions of the Loan Documents, including the Loan Agreement and any other rights and obligations in favor of Lender thereunder, and acknowledges that the same are and shall continue in full force and effect to secure the Obligations.

4.2 Borrower further agrees, at its own cost, and without expense to Lender, to do, execute, acknowledge and deliver all and every such further agreements, instruments, acts, deeds, conveyances, financing statements, assignments, notices of assignments, transfers and assurances as Lender shall from time to time require, for carrying out the intention of facilitating the performance of the terms of the Loan Documents, including the Loan Agreement, the Note and this Amendment and the Allonge.

SECTION 5. CONDITIONS TO EFFECTIVENESS. The provisions of Section 3 of this Amendment shall become effective as of the date of, and only upon the satisfaction of, all of the following conditions precedent:

5.1 Lender shall have received an original of this Amendment and the Allonge, fully executed and duly authorized and delivered to Lender by Borrower.

5.2 All corporate and other proceedings taken or to be taken in connection with the transactions contemplated by this Amendment and the Allonge, and all documents incidental thereto shall be satisfactory in form and substance to Lender and its counsel, and Lender and such counsel shall have received all such counterpart originals or certified copies of such documents as Lender may request in its sole and absolute discretion.

5.3 Borrower shall have paid to Lender all closing costs and other expenses that Borrower is obligated to pay under this Amendment, the Loan Agreement and the Loan Documents.

SECTION 6. REPRESENTATIONS AND WARRANTIES. In order to induce Lender to enter into this Amendment and to amend the Loan Documents in the manner provided in this Amendment, Borrower represents and warrants to Lender that the following statements are true, correct and complete:

6.1 Borrower has all requisite corporate power and authority to enter into this Amendment and the Allonge and to carry out the transactions contemplated by, and perform its obligations under, this Amendment, the Allonge, and the Loan Documents.

6.2 The execution and delivery of this Amendment, the Allonge and the performance of the Loan Documents have been duly authorized by all necessary corporate action on the part of Borrower.

6.3 The execution and delivery by Borrower of this Amendment, the Allonge and the performance of the Loan Documents do not and will not (i) violate any provision of any law or any governmental rule or regulation applicable to Borrower, the articles of organization, operating agreement or other organizational documents of Borrower or any order, judgment or decree of any court or other agency of government binding on Borrower, (ii) conflict with, result in a breach of, or constitute (with due notice or lapse of time or both) a default under any contractual provision or restriction binding on or affecting Borrower, (iii) result in or require the creation or imposition of any lien upon any of the properties or assets of Borrower, or (iv) require any approval of members or any approval or consent of any Person under any contract or agreement to which Borrower is a party that has not already been obtained.

6.4 The execution and delivery by Borrower of this Amendment, the Allonge, and the performance of the Loan Documents do not and will not require any registration with, consent or approval of, or notice to, or other action to, with or by, any federal, state or other governmental authority or regulatory body.

6.5 This Amendment, the Allonge, and the Loan Documents have been duly executed and delivered by Borrower and are its legally valid and binding obligations, enforceable against it in accordance with their respective terms, except as may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws relating to or limiting creditors’ rights generally or by equitable principles relating to enforceability.

6.6 No event has occurred and is continuing or will result from the consummation of the transactions contemplated by this Amendment or the Allonge that would constitute a default under the Loan Documents.

6.7 After giving effect to this Amendment and the Allonge, the representations and warranties contained in the Loan Agreement are and will be true, correct and complete with respect to Borrower in all material respects on and as of the Effective Date to the same extent as though made on and as of the Effective Date.

SECTION 7. RELEASE OF LIABILITY. Borrower releases, remises, acquits and forever discharges Lender and its respective employees, agents, representatives, consultants, attorneys, fiduciaries, servants, officers, directors, partners, predecessors, successors and assigns, subsidiaries, parents and related divisions (all of the foregoing, the “Released Parties”), from any and all actions and causes of action, judgments, executions, suits, debts, claims, demands, liabilities, obligations, damages and expenses of any and every character, known or unknown, direct or indirect, at law or in equity, of whatsoever kind or nature, whether heretofore or hereafter arising, for or because of any matter or things done, omitted or suffered to be done by any of the Released Parties prior to and including the Effective Date, and in any way directly or indirectly arising out of or in any way connected to this Amendment, the Loan Agreement and the Loan Documents on account of any matters or things done, omitted or suffered to be done prior to and including the “Effective Date” (all of the foregoing, the “Released Matters”). Borrower acknowledges that the agreements in this Section 7 are intended to be in full satisfaction of all or any alleged injuries or damages arising in connection with the Released Matters. Borrower represents and warrants to Lender that it has not purported to transfer, assign or otherwise convey any right, title or interest of Borrower in any Released Matter to any other Person and that the foregoing constitutes a full and complete release of all Released Matters.

SECTION 8. MISCELLANEOUS.

8.1 Borrower agrees with Lender that all of the terms of the Loan Agreement, the Note, the other Loan Documents and any other agreement, document, or instrument executed and delivered by Borrower to Lender in connection with Borrower’s obligations under the Loan Agreement and the Loan Documents, are incorporated in and made a part of this Amendment by this reference.

8.2 This Amendment shall be binding upon the parties to this Amendment and their respective heirs, executors, personal and legal representatives, successors and assigns.

8.3 If any term, covenant or condition of this Amendment shall be held to be invalid, illegal or unenforceable in any respect, the validity or enforceability of the remaining provisions shall not in any way be affected.

8.4 This Amendment, the Allonge and the other Loan Documents constitute the entire agreement between the parties and are the final expression of the intentions of Borrower and Lender. No promises, either expressed or implied, exist between Borrower and Lender, unless contained in this Amendment, the Allonge or the other Loan Documents. This Amendment, the Allonge and the other Loan Documents supersede all negotiations, representations, warranties, commitments, offers and contracts (of any kind or nature, whether oral or written) with respect to the subject matter hereof prior to or contemporaneous with the Effective Date.

8.5 This Amendment, and any provisions of this Amendment, may not be modified, amended, waived, extended, changed, discharged or terminated orally or by any act or failure to act on the part of any party to this Amendment, but only by an agreement in writing signed by the party against whom enforcement of any modification, amendment, waiver, extension, change, discharge or termination is sought.

8.6 Borrower agrees that the Loans, including the Interest Rate, fees and charges as contemplated by this Amendment, the Allonge, the Loan Agreement and the other Loan Documents, (a) are business loans under New York law, (b) are exempted transactions under the Truth In Lending Act, 12 U.S.C. 1601 et seq., as amended from time to time, and (c) do not violate the provisions of any New York usury laws, any consumer credit laws or the usury laws of any state that may have jurisdiction over the transactions described in the Loan Documents or any property securing the Obligations. Borrower represents and warrants to Lender that it is entering into this Amendment and the Allonge on its own behalf, and not as nominee, designee, or agent for another nor is Borrower acting for another in so borrowing the amounts under the Loan Documents.

8.7 This Amendment and the Allonge shall be delivered and accepted in and shall be deemed to be contracts made under and governed by the laws of New York and for all purposes shall be construed in accordance with the laws of New York, without giving effect to the choice of law provisions thereof (other than Sections 5-1401 and 5-1402 of the New York General Obligations Law).

8.8 This Amendment may be executed in any number of counterparts and by different parties to this Amendment in separate counterparts, each of which when so executed and delivered shall be deemed an original, and all such counterparts together shall constitute but one and the same instrument. Signature pages may be detached from multiple separate counterparts and attached to a single counterpart so that all signature pages are physically attached to the same document. A signature of a party to this Amendment sent by facsimile, e-mail or other electronic transmission shall have the same force and effect as an original signature of such party.

8.9 Lender acknowledges and agrees that all Obligations under this Agreement are debts of the Borrower and that the credit union members of Borrower are not individually liable for the Obligations under this Agreement.

[Remainder of Page Intentionally Blank; Signature Page Follows]

IN WITNESS WHEREOF, Borrower and Lender have executed this Amendment as of the Effective Date.

BORROWER:
STUDENT CU CONNECT CUSO, LLC, a Delaware limited liability company
By:	/s/ Daniel R. Kampen
	Name: Daniel R. Kampen
	Title: CUSO Administrator

LENDER:
ITT EDUCATIONAL SERVICES, INC., a Delaware corporation
By:	/s/ Kevin M. Modany
	Name: Kevin M. Modany
	Title: Chairman & CEO

SECOND AMENDMENT TO LOAN AND SECURITY AGREEMENT

This SECOND AMENDMENT TO LOAN AND SECURITY AGREEMENT (this “Amendment”) is made effective as of January 13, 2011 (the “Effective Date”) between STUDENT CU CONNECT CUSO, LLC, a Delaware limited liability company (“Borrower”), and ITT EDUCATIONAL SERVICES, INC., a Delaware corporation (“Lender”).

RECITALS

The following recitals are a material part of this Amendment:

A. Borrower and Lender entered into a revolving credit facility as evidenced by that certain Loan and Security Agreement dated as of May 18, 2009, as amended by that certain First Amendment to Loan and Security Agreement dated as of December 30, 2009 (as amended, modified, supplemented, restated, or renewed, from time to time, the “Loan Agreement”) between Borrower and Lender, and additional instruments and agreements between Borrower and Lender, including that certain Revolving Note dated as of May 18, 2009 made by Borrower in favor of Lender in the maximum principal amount of $300,000,000.00 (as amended, modified, supplemented, restated, or renewed, from time to time, the “Note”).

B. Borrower and Lender have agreed to, among other things, provide that the due date of the initial quarterly interest payment under the credit facility shall be extended by one year to January 1, 2012, and to further provide for an interest rate reduction under the credit facility during those periods in which Borrower obtains certain enhanced servicing, by amending the Loan Agreement and the Note pursuant to this Amendment and that certain Second Amendment Allonge to Revolving Note (the “Allonge”), each dated as of the Effective Date and executed contemporaneously with this Amendment.

C. Lender is willing to amend the Loan Agreement and the Note upon and subject to the terms, provisions and conditions set forth in this Amendment and the Allonge.

AGREEMENT

In consideration of the mutual promises contained in this Amendment and for other good and valuable consideration, the receipt and sufficiency of which are acknowledged, the parties to this Amendment mutually agree as follows:

SECTION 1. DEFINED TERMS. All capitalized terms used but not otherwise defined in this Amendment have the meaning set forth in the Loan Agreement.

SECTION 2. ACKNOWLEDGMENT OF INDEBTEDNESS. Borrower and Lender hereby acknowledge and agree that, as of the Effective Date, the outstanding balance due and owing under the Note (which includes both principal and accrued unpaid interest) is $10,779,009.04. Borrower unconditionally and irrevocably acknowledges that all obligations evidenced by the Loan Documents are enforceable against it in accordance with the terms thereof, and unconditionally and irrevocably waives any and all defenses, claims or setoffs affecting any of the obligations which may have existed or arisen (or which are based on facts or circumstances actually or allegedly existing) prior to the Effective Date (except for mathematical or clerical errors proven to the reasonable satisfaction of Lender, for which any remedies in favor of Borrower shall be limited to the correction of such mathematical or clerical error).

SECTION 3. AMENDMENTS TO LOAN AGREEMENT. The Loan Agreement is amended so that all of the terms and provisions of this Amendment, including all terms defined in this Amendment, are incorporated and integrated into, and made a material part of, the Loan Agreement as if fully set forth therein. In addition, the following specific amendments are hereby adopted:

3.1 Section 1.1 of the Loan Agreement is hereby amended by adding the following defined terms:

“Enhanced Servicing”: Such services and activities of a Servicer provided with respect to Student Loans that are in addition to those services and activities set forth in that certain Business Requirements Document dated January 21, 2009.

“Enhanced Servicing Threshold”: Enhanced Servicing for at least 75% of the dollar value (based on outstanding principal balances) of those Student Loans held by Borrower for which the applicable Students are no longer enrolled in an ITT Technical Institute for at least four quarter credit hours, regardless of the reason, which Student Loans have not been either (i) Charged Off (as defined in Schedule A to the Risk Sharing Agreement) or (ii) paid in full.

Except as amended by Section 3.2 of this Amendment and this Section 3.1, the remainder of Section 1.1 of the Loan Agreement is unchanged.

3.2 Section 1.1 of the Loan Agreement is hereby further amended so that the definitions of Bailment Agreement, Servicer, Servicing Agreement, and Servicing Fee read in their entirety as follows:

“Bailment Agreement”: Any Bailment Agreement entered into from time to time among Lender, Borrower and any Servicer, as amended, supplemented, modified, or replaced from time to time.

“Servicer”: The Person or Persons obligated pursuant to one or more Servicing Agreements to, among other things, collect, monitor and report Student Loan payments, handle late payments and other delinquencies, and remit payments.

“Servicing Agreement”: Any Servicing Agreement entered into from time to time between Borrower and any Servicer, as amended, supplemented, modified, or replaced from time to time.

“Servicing Fee”: All servicing fees payable to Servicers for performing their respective servicing obligations under the applicable Servicing Agreements.

Except as amended by Section 3.1 of this Amendment and this Section 3.2, the remainder of Section 1.1 of the Loan Agreement is unchanged.

3.3 Subsection 2.1(c)(i) of the Loan Agreement is hereby amended to provide that the commencement date for quarterly payments of accrued and unpaid interest on the principal balance of the Loans shall be January 1, 2012. The remainder of Subsection 2.1(c)(i) of the Loan Agreement is unchanged.

3.4 Subsection 2.1(c)(iii)(B) of the Loan Agreement is hereby amended by adding the following at the end of such Subsection: “Notwithstanding anything contained herein to the contrary, during (and only during) Funding Year 2011, at Borrower’s option exercised from time to time during such Funding Year with prior written notice to Lender, any amounts payable to Borrower as refunds of Student Loans and otherwise required to be paid to Lender as set forth above shall be deposited in the Commitment Account (as defined in the Participation Agreement) to be utilized to purchase Student Loans from time to time, as provided in the Participation Agreement and the other Program Documents.” The remainder of Subsection 2.1(c)(iii)(B) of the Loan Agreement is unchanged.

3.5 Section 2.2 of the Loan Agreement is hereby amended by adding the following at the end of such Section: “Notwithstanding anything contained herein to the contrary, during (and only during) any period in which the Enhanced Servicing Threshold is met, provided that Borrower shall have timely provided both the notifications and the certifications required by Section 9.13 hereof, the Interest Rate shall be the Prime Rate plus one percent (1.00%) per annum.” The remainder of Section 2.2 of the Loan Agreement is unchanged.

3.6 The third paragraph of Section 6.5 of the Loan Agreement is hereby amended by adding the following at the end of such paragraph: “Notwithstanding anything contained herein to the contrary, Borrower shall be required to cause Bailment Agreements to be entered into with only those Servicers that will have access to Student Loan Documents, and each such Bailment Agreement must be in form and substance satisfactory to Lender.” The remainder of Section 6.5 of the Loan Agreement is unchanged.

3.7 The Loan Agreement is hereby amended by adding a new Section 9.13 as follows:

9.13 Enhanced Servicing Notifications and Certifications.

(a) Borrower shall provide written notice to Lender, in form and content reasonably satisfactory to Lender, of each period of time during which the Enhanced Servicing Threshold is being met, by providing such notice within five (5) Business Days following both (i) any date on which the Enhanced Servicing Threshold is met, and (ii) the last date thereafter on which the Enhanced Servicing Threshold was met.

(b) Within ten (10) Business Days following the end of each quarter during which Borrower reasonably believes the Enhanced Servicing Threshold was met for at least one day, Borrower shall certify in writing to Lender, in form and content reasonably satisfactory to Lender, as to the dates on which such Enhanced Servicing Threshold was met during such quarter.

3.8 Section 10 of the Loan Agreement is hereby amended by adding a new Subsection 10(j) as follows:

(j) the delivery of any Student Loan Document to any Servicer or other Person who has not executed a Bailment Agreement pursuant to Section 6.5.

SECTION 4. RATIFICATION AND REAFFIRMATION OF THE LOAN DOCUMENTS; FURTHER ASSURANCES.

4.1 Except and as expressly modified by this Amendment and the Allonge, Borrower ratifies, affirms and confirms the terms, covenants and provisions of the Loan Documents, including the Loan Agreement and any other rights and obligations in favor of Lender thereunder, and acknowledges that the same are and shall continue in full force and effect to evidence and secure the Obligations.

4.2 Borrower further agrees, at its own cost, and without expense to Lender, to do, execute, acknowledge and deliver all and every such further agreements, instruments, acts, deeds, conveyances, financing statements, assignments, notices of assignments, transfers and assurances as Lender shall from time to time require, for carrying out the intention of facilitating the performance of the terms of the Loan Documents, including the Loan Agreement, the Note and this Amendment and the Allonge.

SECTION 5. CONDITIONS TO EFFECTIVENESS. The provisions of Section 3 of this Amendment shall become effective as of the date of, and only upon the satisfaction of, all of the following conditions precedent:

5.1 Lender shall have received an original of this Amendment and the Allonge, fully executed and duly authorized and delivered to Lender by Borrower.

5.2 All corporate and other proceedings taken or to be taken in connection with the transactions contemplated by this Amendment and the Allonge, and all documents incidental thereto shall be satisfactory in form and substance to Lender and its counsel, and Lender and such counsel shall have received all such counterpart originals or certified copies of such documents as Lender may request in its sole and absolute discretion.

5.3 Borrower shall have paid to Lender all closing costs and other expenses that Borrower is obligated to pay under this Amendment, the Loan Agreement and the Loan Documents.

SECTION 6. REPRESENTATIONS AND WARRANTIES. In order to induce Lender to enter into this Amendment and to amend the Loan Documents in the manner provided in this Amendment, Borrower represents and warrants to Lender that the following statements are true, correct and complete:

6.1 Borrower has all requisite corporate power and authority to enter into this Amendment and the Allonge and to carry out the transactions contemplated by, and perform its obligations under, this Amendment, the Allonge, and the Loan Documents.

6.2 The execution and delivery of this Amendment, the Allonge and the performance of the Loan Documents have been duly authorized by all necessary corporate action on the part of Borrower.

6.3 The execution and delivery by Borrower of this Amendment, the Allonge and the performance of the Loan Documents do not and will not (i) violate any provision of any law or any governmental rule or regulation applicable to Borrower, the articles of organization, operating agreement or other organizational documents of Borrower or any order, judgment or decree of any court or other agency of government binding on Borrower, (ii) conflict with, result in a breach of, or constitute (with due notice or lapse of time or both) a default under any contractual provision or restriction binding on or affecting Borrower, (iii) result in or require the creation or imposition of any lien upon any of the properties or assets of Borrower, or (iv) require any approval of members or any approval or consent of any Person under any contract or agreement to which Borrower is a party that has not already been obtained.

6.4 The execution and delivery by Borrower of this Amendment, the Allonge, and the performance of the Loan Documents do not and will not require any registration with, consent or approval of, or notice to, or other action to, with or by, any federal, state or other governmental authority or regulatory body.

6.5 This Amendment, the Allonge, and the Loan Documents have been duly executed and delivered by Borrower and are its legally valid and binding obligations, enforceable against it in accordance with their respective terms, except as may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws relating to or limiting creditors’ rights generally or by equitable principles relating to enforceability.

6.6 No event has occurred and is continuing or will result from the consummation of the transactions contemplated by this Amendment or the Allonge that would constitute a default under the Loan Documents.

6.7 After giving effect to this Amendment and the Allonge, the representations and warranties contained in the Loan Agreement are and will be true, correct and complete with respect to Borrower in all material respects on and as of the Effective Date to the same extent as though made on and as of the Effective Date.

SECTION 7. RELEASE OF LIABILITY. Borrower releases, remises, acquits and forever discharges Lender and its respective employees, agents, representatives, consultants, attorneys, fiduciaries, servants, officers, directors, partners, predecessors, successors and assigns, subsidiaries, parents and related divisions (all of the foregoing, the “Released Parties”), from any and all actions and causes of action, judgments, executions, suits, debts, claims, demands, liabilities, obligations, damages and expenses of any and every character, known or unknown, direct or indirect, at law or in equity, of whatsoever kind or nature, whether heretofore or hereafter arising, for or because of any matter or things done, omitted or suffered to be done by any of the Released Parties prior to and including the Effective Date, and in any way directly or indirectly arising out of or in any way connected to this Amendment, the Loan Agreement and the Loan Documents on account of any matters or things done, omitted or suffered to be done prior to and including the “Effective Date” (all of the foregoing, the “Released Matters”). Borrower acknowledges that the agreements in this Section 7 are intended to be in full satisfaction of all or any alleged injuries or damages arising in connection with the Released Matters. Borrower represents and warrants to Lender that it has not purported to transfer, assign or otherwise convey any right, title or interest of Borrower in any Released Matter to any other Person and that the foregoing constitutes a full and complete release of all Released Matters.

SECTION 8. MISCELLANEOUS.

8.1 Borrower agrees with Lender that all of the terms of the Loan Agreement, the Note, the other Loan Documents and any other agreement, document, or instrument executed and delivered by Borrower to Lender in connection with Borrower’s obligations under the Loan Agreement and the Loan Documents, are incorporated in and made a part of this Amendment by this reference.

8.2 This Amendment shall be binding upon the parties to this Amendment and their respective heirs, executors, personal and legal representatives, successors and assigns.

8.3 If any term, covenant or condition of this Amendment shall be held to be invalid, illegal or unenforceable in any respect, the validity or enforceability of the remaining provisions shall not in any way be affected.

8.4 This Amendment, the Allonge and the other Loan Documents constitute the entire agreement between the parties and are the final expression of the intentions of Borrower and Lender. No promises, either expressed or implied, exist between Borrower and Lender, unless contained in this Amendment, the Allonge or the other Loan Documents. This Amendment, the Allonge and the other Loan Documents supersede all negotiations, representations, warranties, commitments, offers and contracts (of any kind or nature, whether oral or written) with respect to the subject matter hereof prior to or contemporaneous with the Effective Date.

8.5 This Amendment, and any provisions of this Amendment, may not be modified, amended, waived, extended, changed, discharged or terminated orally or by any act or failure to act on the part of any party to this Amendment, but only by an agreement in writing signed by the party against whom enforcement of any modification, amendment, waiver, extension, change, discharge or termination is sought.

8.6 Borrower agrees that the Loans, including the Interest Rate, fees and charges as contemplated by this Amendment, the Allonge, the Loan Agreement and the other Loan Documents, (a) are business loans under New York law, (b) are exempted transactions under the Truth In Lending Act, 12 U.S.C. 1601 et seq., as amended from time to time, and (c) do not violate the provisions of any New York usury laws, any consumer credit laws or the usury laws of any state that may have jurisdiction over the transactions described in the Loan Documents or any property securing the Obligations. Borrower represents and warrants to Lender that it is entering into this Amendment and the Allonge on its own behalf, and not as nominee, designee, or agent for another nor is Borrower acting for another in so borrowing the amounts under the Loan Documents.

8.7 This Amendment and the Allonge shall be delivered and accepted in and shall be deemed to be contracts made under and governed by the laws of New York and for all purposes shall be construed in accordance with the laws of New York, without giving effect to the choice of law provisions thereof (other than Sections 5-1401 and 5-1402 of the New York General Obligations Law).

8.8 This Amendment may be executed in any number of counterparts and by different parties to this Amendment in separate counterparts, each of which when so executed and delivered shall be deemed an original, and all such counterparts together shall constitute but one and the same instrument. Signature pages may be detached from multiple separate counterparts and attached to a single counterpart so that all signature pages are physically attached to the same document. A signature of a party to this Amendment sent by facsimile, e-mail or other electronic transmission shall have the same force and effect as an original signature of such party.

8.9 Lender acknowledges and agrees that all Obligations under this Agreement are debts of the Borrower and that the credit union members of Borrower are not individually liable for the Obligations under this Agreement.

[Remainder of Page Intentionally Blank; Signature Page Follows]

IN WITNESS WHEREOF, Borrower and Lender have executed this Amendment as of the Effective Date.

BORROWER:
STUDENT CU CONNECT CUSO, LLC, a Delaware limited liability company
By:	/s/ Joe Karlin
	Name: Joe Karlin
	Title: Program Administrator

LENDER:
ITT EDUCATIONAL SERVICES, INC., a Delaware corporation
By:	/s/ Kevin M. Modany
	Name: Kevin M. Modany
	Title: Chairman and CEO

THIRD AMENDMENT TO LOAN AND SECURITY AGREEMENT

This THIRD AMENDMENT TO LOAN AND SECURITY AGREEMENT (this “Amendment”) is made and entered into effective as of May 18, 2012 (the “Effective Date”) between STUDENT CU CONNECT CUSO, LLC, a Delaware limited liability company (“Borrower”), and ITT EDUCATIONAL SERVICES, INC., a Delaware corporation (“Lender”).

RECITALS

The following recitals are a material part of this Amendment:

A. Borrower and Lender entered into a revolving credit facility as evidenced by that certain Loan and Security Agreement dated as of May 18, 2009, as amended by that certain First Amendment to Loan and Security Agreement dated as of December 30, 2009, and that certain Second Amendment to Loan and Security Agreement dated as of January 3, 2011 (as amended, modified, supplemented, restated, or renewed, from time to time, the “Loan Agreement”), between Borrower and Lender, and additional instruments and agreements between Borrower and Lender, including that certain Revolving Note dated as of May 18, 2009, made by Borrower in favor of Lender in the maximum principal amount of $300,000,000.00 (as amended, modified, supplemented, restated, or renewed, from time to time, the “Note”).

B. Borrower has requested certain changes to be effected by amending the Loan Agreement and the Note pursuant to this Amendment.

C. Borrower is entering into a new servicing agreement that provides for enhanced servicing activities, and therefore references in the Loan Agreement to certifications of enhanced servicing are no longer necessary.

D. Lender is willing to amend the Loan Agreement and the Note upon and subject to the terms, provisions and conditions set forth in this Amendment and in that certain Third Amendment Allonge to Revolving Note, a copy of which is attached as Exhibit A (the “Allonge”), executed contemporaneously with this Amendment.

AGREEMENT

In consideration of the mutual promises contained in this Amendment and for other good and valuable consideration, the receipt and sufficiency of which are acknowledged, the parties to this Amendment mutually agree as follows:

SECTION 1. DEFINED TERMS. All capitalized terms used but not otherwise defined in this Amendment have the meaning set forth in the Loan Agreement.

SECTION 2. ACKNOWLEDGMENT OF INDEBTEDNESS. Borrower and Lender hereby acknowledge and agree that, as of the Effective Date, the outstanding balance due and owing under the Note (which includes both principal and accrued unpaid interest) is $9,485,011.48. Borrower unconditionally and irrevocably acknowledges that all obligations evidenced by the Loan Documents are enforceable against it in accordance with the terms thereof, and unconditionally and irrevocably waives any and all defenses, claims or setoffs affecting any of the obligations which may have existed or arisen (or which are based on facts or circumstances actually or allegedly existing) prior to the Effective Date (except for mathematical or clerical errors proven to the reasonable satisfaction of Lender, for which any remedies in favor of Borrower shall be limited to the correction of such mathematical or clerical error).

SECTION 3. AMENDMENTS TO LOAN AGREEMENT. Effective as of the Effective Date, the Loan Agreement is amended so that all of the terms and provisions of this Amendment, including all terms defined in this Amendment, are incorporated and integrated into, and made a material part of, the Loan Agreement as if fully set forth therein. In addition, the following specific amendments are hereby adopted:

3.1 Section 1.1 of the Loan Agreement is hereby amended in the following respects:

(a) The definitions of “Advance Termination Date” and “Interest Rate” are deleted in their entirety and the following is substituted in their stead:

“Advance Termination Date”: January 1, 2014.

“Interest Rate”: The per annum rate equal to the Prime Rate plus one percent (1.00%) per annum.

(b) The following definitions are deleted in their entirety: “Enhanced Servicing” and “Enhanced Servicing Threshold.”

(c) For the avoidance of any confusion, other than the changes specified in (a) and (b) above, of Section 1.1 of the Loan Agreement remains unchanged.

3.2 Subsection 2.1(c)(i) of the Loan Agreement is hereby amended to provide that the commencement date for quarterly payments of accrued and unpaid interest on the principal balance of the Loans shall be January 1, 2014. For the avoidance of any confusion, the remainder of Subsection 2.1(c)(i) of the Loan Agreement is unchanged.

3.3 Section 2.2 of the Loan Agreement is hereby amended to delete the last sentence of such Section. For the avoidance of any confusion, the remainder of Section 2.2 of the Loan Agreement is unchanged.

3.4 Section 9.13 of the Loan Agreement is hereby deleted in its entirety.

As hereby amended, that the Loan Agreement remains in full force and effect.

SECTION 4. RATIFICATION AND REAFFIRMATION OF THE LOAN DOCUMENTS; FURTHER ASSURANCES.

4.1 Except and as expressly modified by this Amendment and the Allonge, Borrower ratifies, affirms and confirms the terms, covenants and provisions of the Loan Documents, including the Loan Agreement and any other rights and obligations in favor of Lender thereunder, and acknowledges that the same are and shall continue in full force and effect to evidence and secure the Obligations.

4.2 Borrower further agrees, at its own cost, and without expense to Lender, to do, execute, acknowledge and deliver all and every such further agreements, instruments, acts, deeds, conveyances, financing statements, assignments, notices of assignments, transfers and assurances as Lender shall from time to time require, for carrying out the intention of facilitating the performance of the terms of the Loan Documents, including the Loan Agreement, the Note and this Amendment and the Allonge.

SECTION 5. CONDITIONS TO EFFECTIVENESS. The provisions of Section 3 of this Amendment shall become effective as of the date of, and only upon the satisfaction of, all of the following conditions precedent:

5.1 Lender shall have received an original of this Amendment and the Allonge, fully executed and duly authorized and delivered to Lender by Borrower.

5.2 All corporate and other proceedings taken or to be taken in connection with the transactions contemplated by this Amendment and the Allonge, and all documents incidental thereto shall be satisfactory in form and substance to Lender and its counsel, and Lender and such counsel shall have received all such counterpart originals or certified copies of such documents as Lender may request in its sole and absolute discretion.

5.3 Borrower shall have paid to Lender all closing costs and other expenses that Borrower is obligated to pay under this Amendment, the Loan Agreement and the Loan Documents.

SECTION 6. REPRESENTATIONS AND WARRANTIES. In order to induce Lender to enter into this Amendment and to amend the Loan Documents in the manner provided in this Amendment, Borrower represents and warrants to Lender that the following statements are true, correct and complete:

6.1 Borrower has all requisite corporate power and authority to enter into this Amendment and the Allonge and to carry out the transactions contemplated by, and perform its obligations under, this Amendment, the Allonge, and the Loan Documents.

6.2 The execution and delivery of this Amendment, the Allonge and the performance of the Loan Documents have been duly authorized by all necessary corporate action on the part of Borrower.

6.3 The execution and delivery by Borrower of this Amendment, the Allonge and the performance of the Loan Documents do not and will not (i) violate any provision of any law or any governmental rule or regulation applicable to Borrower, the articles of organization, operating agreement or other organizational documents of Borrower or any order, judgment or decree of any court or other agency of government binding on Borrower, (ii) conflict with, result in a breach of, or constitute (with due notice or lapse of time or both) a default under any contractual provision or restriction binding on or affecting Borrower, (iii) result in or require the creation or imposition of any lien upon any of the properties or assets of Borrower, or (iv) require any approval of members or any approval or consent of any Person under any contract or agreement to which Borrower is a party that has not already been obtained.

6.4 The execution and delivery by Borrower of this Amendment, the Allonge, and the performance of the Loan Documents do not and will not require any registration with, consent or approval of, or notice to, or other action to, with or by, any federal, state or other governmental authority or regulatory body.

6.5 This Amendment, the Allonge, and the Loan Documents have been duly executed and delivered by Borrower and are its legally valid and binding obligations, enforceable against it in accordance with their respective terms, except as may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws relating to or limiting creditors’ rights generally or by equitable principles relating to enforceability.

6.6 No event has occurred and is continuing or will result from the consummation of the transactions contemplated by this Amendment or the Allonge that would constitute a default under the Loan Documents.

6.7 After giving effect to this Amendment and the Allonge, the representations and warranties contained in the Loan Agreement are and will be true, correct and complete with respect to Borrower in all material respects on and as of the Effective Date to the same extent as though made on and as of the Effective Date.

SECTION 7. RELEASE OF LIABILITY. Borrower releases, remises, acquits and forever discharges Lender and its respective employees, agents, representatives, consultants, attorneys, fiduciaries, servants, officers, directors, partners, predecessors, successors and assigns, subsidiaries, parents and related divisions (all of the foregoing, the “Released Parties”), from any and all actions and causes of action, judgments, executions, suits, debts, claims, demands, liabilities, obligations, damages and expenses of any and every character, known or unknown, direct or indirect, at law or in equity, of whatsoever kind or nature, whether heretofore or hereafter arising, for or because of any matter or things done, omitted or suffered to be done by any of the Released Parties prior to and including the Effective Date, and in any way directly or indirectly arising out of or in any way connected to this Amendment, the Loan Agreement and the Loan Documents on account of any matters or things done, omitted or suffered to be done prior to and including the “Effective Date” (all of the foregoing, the “Released Matters”). Borrower acknowledges that the agreements in this Section 7 are intended to be in full satisfaction of all or any alleged injuries or damages arising in connection with the Released Matters. Borrower represents and warrants to Lender that it has not purported to transfer, assign or otherwise convey any right, title or interest of Borrower in any Released Matter to any other Person and that the foregoing constitutes a full and complete release of all Released Matters.

SECTION 8. MISCELLANEOUS.

8.1 Borrower agrees with Lender that all of the terms of the Loan Agreement, the Note, the other Loan Documents and any other agreement, document, or instrument executed and delivered by Borrower to Lender in connection with Borrower’s obligations under the Loan Agreement and the Loan Documents, are incorporated in and made a part of this Amendment by this reference.

8.2 This Amendment shall be binding upon the parties to this Amendment and their respective heirs, executors, personal and legal representatives, successors and assigns.

8.3 If any term, covenant or condition of this Amendment shall be held to be invalid, illegal or unenforceable in any respect, the validity or enforceability of the remaining provisions shall not in any way be affected.

8.4 This Amendment, the Allonge and the other Loan Documents constitute the entire agreement between the parties and are the final expression of the intentions of Borrower and Lender. No promises, either expressed or implied, exist between Borrower and Lender, unless contained in this Amendment, the Allonge or the other Loan Documents. This Amendment, the Allonge and the other Loan Documents supersede all negotiations, representations, warranties, commitments, offers and contracts (of any kind or nature, whether oral or written) with respect to the subject matter hereof prior to or contemporaneous with the Effective Date.

8.5 This Amendment, and any provisions of this Amendment, may not be modified, amended, waived, extended, changed, discharged or terminated orally or by any act or failure to act on the part of any party to this Amendment, but only by an agreement in writing signed by the party against whom enforcement of any modification, amendment, waiver, extension, change, discharge or termination is sought.

8.6 Borrower agrees that the Loans, including the Interest Rate, fees and charges as contemplated by this Amendment, the Allonge, the Loan Agreement and the other Loan Documents, (a) are business loans under New York law, (b) are exempted transactions under the Truth In Lending Act, 12 U.S.C. 1601 et seq., as amended from time to time, and (c) do not violate the provisions of any New York usury laws, any consumer credit laws or the usury laws of any state that may have jurisdiction over the transactions described in the Loan Documents or any property securing the Obligations. Borrower represents and warrants to Lender that it is entering into this Amendment and the Allonge on its own behalf, and not as nominee, designee, or agent for another nor is Borrower acting for another in so borrowing the amounts under the Loan Documents.

8.7 This Amendment and the Allonge shall be delivered and accepted in and shall be deemed to be contracts made under and governed by the laws of New York and for all purposes shall be construed in accordance with the laws of New York, without giving effect to the choice of law provisions thereof (other than Sections 5-1401 and 5-1402 of the New York General Obligations Law).

8.8 This Amendment may be executed in any number of counterparts and by different parties to this Amendment in separate counterparts, each of which when so executed and delivered shall be deemed an original, and all such counterparts together shall constitute but one and the same instrument. Signature pages may be detached from multiple separate counterparts and attached to a single counterpart so that all signature pages are physically attached to the same document. A signature of a party to this Amendment sent by facsimile, e-mail or other electronic transmission shall have the same force and effect as an original signature of such party.

8.9 Lender acknowledges and agrees that all Obligations under this Agreement are debts of the Borrower and that the credit union members of Borrower are not individually liable for the Obligations under this Agreement.

[Remainder of Page Intentionally Blank; Signature Page Follows]

IN WITNESS WHEREOF, Borrower and Lender have executed this Amendment as of the Effective Date.

BORROWER:
STUDENT CU CONNECT CUSO, LLC, a Delaware limited liability company
By:	/s/ Lisa A. Schlehuber
	Name: Lisa A. Schlehuber
	Title: Board Chair/Manager

LENDER:
ITT EDUCATIONAL SERVICES, INC., a Delaware corporation
By:	/s/ Kevin M. Modany
	Name: Kevin M. Modany
	Title: Chairman and CEO

EXHIBIT A

to

Third Amendment to Loan and Security Agreement

(Allonge)

THIRD AMENDMENT ALLONGE TO REVOLVING NOTE

This THIRD AMENDMENT ALLONGE TO REVOLVING NOTE (this “Allonge”) is made effective as of May     , 2012 (the “Effective Date”), and is attached to and forms part of that certain Revolving Note dated May 18, 2009 (the “Note”), made by STUDENT CU CONNECT CUSO, LLC, a Delaware limited liability company (“Borrower”), in favor of ITT EDUCATIONAL SERVICES, INC., a Delaware corporation (together with its successors and assigns, the “Lender”), in the original principal amount of $300,000,000. Capitalized words and phrases not otherwise defined in this Allonge have the meanings set forth in the Note.

Borrower and Lender hereby agree that the Note is hereby amended by acknowledging that the Loan Agreement has been amended by that certain Third Amendment to Loan and Security Agreement dated as of the Effective Date.

Except as modified by the preceding paragraph, all other terms and provisions of the Note shall remain in full force and effect without modification. Borrower and Lender hereby agree and acknowledge that any and all acts taken or performed by either party hereto prior to the Effective Date that were in accordance with the terms of the Note as modified by this Allonge are hereby approved and ratified. This Allonge is attached to and is hereby made an integral part of the Note. This Allonge shall be binding upon the parties hereto and their successors and assigns. This Allonge shall be construed and enforced in accordance with, and the rights of the parties to this Allonge shall be governed by, the laws of New York, without giving effect to the choice of law provisions thereof (other than Sections 5-1401 and 5-1402 of the New York General Obligations Law).

IN WITNESS WHEREOF, Borrower has executed this Allonge effective as of the Effective Date.

BORROWER:

STUDENT CU CONNECT CUSO, LLC,

a Delaware limited liability company

By:

Name:                                                                                   

Title:                                                                                     

ACKNOWLEDGED AND AGREED BY LENDER:

ITT EDUCATIONAL SERVICES, INC.,

a Delaware corporation

By:

Name:                                                                               

Title:                                                                                 

EX-10.56

EXHIBIT 10.56

Execution Copy

AGREEMENT FOR SERVICING PRIVATE STUDENT LOANS

By and Between

STUDENT CU CONNECT CUSO, LLC,

and

FIRST ASSOCIATES LOAN SERVICING, LLC

DATED AS OF MAY 18, 2012

TABLE OF CONTENTS

Page

ARTICLE I DEFINITIONS		1
Section 1.01	Definitions	1
Section 1.02	Definitions of General Terms	5
ARTICLE II PROVISION OF SERVICES		5
Section 2.01	Loans Covered by this Agreement	5
Section 2.02	Services	6
Section 2.03	Servicing Reports	6
Section 2.04	Manner of Performance of Services	6
Section 2.05	Safekeeping of Loan Documents	7
Section 2.06	Examination of Records	7
Section 2.07	Appointment as Agent	7
Section 2.08	Reports and Audits Relating to the Servicer	7
Section 2.09	Additional Information and Actions	8
Section 2.10	Servicer Holidays	8
Section 2.11	Deconversion of Loans from XES	8
ARTICLE III COMPENSATION		9
Section 3.01	Amount of Compensation	9
Section 3.02	Statements	9
Section 3.03	Due Dates for Payments	9
ARTICLE IV REPRESENTATIONS AND WARRANTIES		10
Section 4.01	Representations and Warranties of the Servicer	10
Section 4.02	Representations and Warranties of the Client	10
Section 4.03	Mutual Representations and Warranties	10
ARTICLE V TERM AND TERMINATION		11
Section 5.01	Term of Agreement	11
Section 5.02	Termination	11
Section 5.03	Termination with Respect to Specific Loans; Activities Relating to Defaulted Loans	11
Section 5.04	Impossibility of Performance; Disaster Recovery Plan	12
Section 5.05	Deconversion Services	13
Section 5.06	Forwarding of Payments and Communications	13
ARTICLE VI MISCELLANEOUS		13
Section 6.01	Limited Agency Powers	13
Section 6.02	Confidentiality; Trade Secrets and Proprietary Information	13
Section 6.03	Amendments; Entire Agreement; Prior Agreements	15
Section 6.04	Assignment and Subcontracting	15
Section 6.05	Indemnity	16
Section 6.06	Insurance	17
Section 6.07	Governing Law	18

i

Section 6.08	Notices	18
Section 6.09	Severability	19
Section 6.10	Survival	19
Section 6.11	Waiver of Rights	19
Section 6.12	Cumulative Remedies	19
Section 6.13	Arbitration	19
Section 6.14	Headings	20
Section 6.15	Execution in Counterparts	20
Section 6.16	Certain Activities in U.S. Only	20
Section 6.17	Third Party Beneficiary	20
SCHEDULE A FEE SCHEDULE		A-1
SCHEDULE B SERVICES		B-1
SCHEDULE C REPORTS		C-1
SCHEDULE D DECONVERSION SERVICES		D-1
SCHEDULE E PROGRAM GUIDELINES		E-1
SCHEDULE F TERMINATION CRITERIA		F-1
SCHEDULE G SERVICER HOLIDAYS		G-1
SCHEDULE H DECONVERSION AND TRANSFER SCHEDULE FROM XES’ SERVICING SYSTEM		H-1

ii

Agreement for Servicing Private Student Loans

This Agreement for Servicing Private Student Loans is made and entered into as of May 18, 2012, by and between First Associates Loan Servicing, LLC, a Delaware limited liability company (the “Servicer”), and Student CU Connect CUSO, LLC, a Delaware limited liability company (the “Client”).

RECITALS:

A. The Client owns student loans (“Student Loans”) made by Eli Lilly Federal Credit Union (the “Originating Lender”) to students attending post-secondary educational institutions operated by ITT Educational Services, Inc. (each, a “School”).

B. The Client, as owner of the Student Loans, is responsible for providing for the servicing and collection of the Student Loans.

C. Subject to the terms and conditions set forth in this Agreement, the Servicer will provide servicing and collection services for Student Loans while they are held by the Client.

D. Subject to the terms and conditions of this Agreement, the Servicer also will provide services to the Client in connection with the deconversion of, and transfer to the Servicer for servicing and collection hereunder of, Student Loans currently being serviced by Xerox Education Services, Inc. (formerly known as ACS Education Services, Inc.) for the Client

AGREEMENT:

In consideration of the foregoing premises and the mutual covenants contained herein, and of other good and valuable consideration, the receipt of which is hereby acknowledged, the parties agree as follows:

ARTICLE I

DEFINITIONS

Section 1.01 Definitions

The following terms as used in this Agreement (including the preamble of this Agreement) shall have the following meanings unless the context clearly indicates otherwise:

(A) “Account” means all Serviced Loans with the same Borrower’s social security number.

(B) “Additional Disbursement Loan” has the meaning assigned thereto in Section 2.11(A) of this Agreement.

(C) “Agreement” means this Agreement for Servicing Private Student Loans, including Schedules A through H hereto which are made a part hereof, as supplemented and amended from time to time in accordance with the provisions hereof.

(D) “Applicable Laws” means the State and Federal consumer lending and collection laws and other laws applicable to the Services, to the extent the same apply to the servicing and collection of loans made by a federal credit union or national bank to competent adult individuals (including such loans that have been transferred to another entity), including, without limitation, the Equal Credit Opportunity Act, the Fair Credit Reporting Act, the Fair Debt Collection Practices Act, the Gramm-Leach-Bliley Act, the Truth-in-Lending Act, the Higher Education Opportunity Act, the Federal Trade Commission Act, the USA PATRIOT Act, and any regulations implementing such statutes (including, without limitation, the FTC Red Flag Rules).

(E) “Borrower” means an individual who borrows funds through a Student Loan.

(F) “Business Day” means a day of the year other than a Saturday, a Sunday or a day on which banks located in New York, New York are required or authorized by law to remain closed or a scheduled holiday for the Servicer (as set forth in Schedule G hereto for 2012, and, for subsequent years, for which it has provided notice pursuant to Section 2.10 hereof).

(G) “Client” means Student CU Connect CUSO, LLC, a Delaware limited liability company, and its successors and permitted assigns.

(H) “Customer Information” means nonpublic information relating to Borrowers or co-signers of Serviced Loans, including without limitation names, addresses, telephone numbers, e-mail addresses, credit information, account numbers, social security numbers, loan balances or other account information, and lists derived therefrom.

(I) “Deconversion Services” means those services to be provided by the Servicer pursuant to Schedule D hereto (and does not include those services provided pursuant to Section 2.11 hereof).

(J) “Defaulted Loan” means a Serviced Loan with respect to which (1) any required payment becomes more than 180 days delinquent (without regard to whether such payment is later made), or (2) the Servicer is notified that the Borrower is deceased.

(K) “Deferment Period” means a period permitted by the Program Guidelines during which a Borrower is enrolled in a School or is in the military and is permitted to temporarily forego payments on the Borrower’s Student Loan.

(L) “Effective Date” means May 18, 2012.

2

(M) “Examiner” has the meaning assigned thereto in Section 2.06(A) hereof.

(N) “Expiration Date” means May 31, 2017.

(O) “Forbearance Period” means a period permitted by the Program Guidelines during which a Borrower (in Repayment) is permitted to temporarily forego payments or make reduced payments on the Borrower’s Student Loan.

(P) “Grace Period” means the three-month or six-month period immediately preceding the Repayment Period, if and as provided for in the Borrower’s Note.

(Q) “Interim Period” means the period from the disbursement of a Serviced Loan to the commencement of the earlier of (1) the Grace Period and (2) the Repayment Period, if and as provided for in the Borrower’s Note.

(R) “ITT” means ITT Educational Services, Inc., a Delaware corporation, and its successors and assigns.

(S) “Note” means the authoritative electronic copy of an electronically signed application and loan agreement evidencing a Student Loan or, if in paper form, the originally executed application and loan agreement evidencing a Student Loan.

(T) “Originating Lender” means Eli Lilly Federal Credit Union, a federal credit union, which makes or has made the Student Loans.

(U) “Program” means the private student loan program under which the Originating Lender makes or has made loans to students for costs of attendance at the Schools.

(V) “Program Guidelines” means the guidelines for origination, servicing and administration of the Student Loans attached hereto as Schedule E, as amended by agreement of the parties hereto with the prior consent of ITT.

(W) “Program Requirements” means the applicable provisions and requirements of the Note, the Program Guidelines and any Applicable Laws. In the event of any inconsistency between:

(1) Applicable Law and the Note or the Program Guidelines, Applicable Law shall prevail; or

(2) the Note and the Program Guidelines, the Note shall prevail.

(X) “Repayment” or “Repayment Period” means the period of time during which a Borrower is required under his or her Note to make installment payments to repay the aggregate principal amount of, plus accrued interest on, the Borrower’s Student Loan.

(Y) “Repayment Schedule” means the schedule of loan payments established prior to the commencement of the Repayment Period with respect to a Student Loan, which schedule sets out the amount and timing of installments necessary to pay such Student Loan in full within the applicable Repayment Period.

3

(Z) “School” means an institution of higher education owned and operated by ITT.

(AA) “Serviced Loan” means any of the Student Loans identified in Section 2.01 hereof, except for those Student Loans with respect to which this Agreement has been terminated as provided in Section 5.03; provided, however, that a Defaulted Loan shall not be a “Serviced Loan” for purposes of Schedule A.

(BB) “Servicer” means First Associates Loan Servicing, LLC, a Delaware limited liability company, and its successors and permitted assigns.

(CC) “Servicer Default” means the occurrence and continuance of any of the following events with respect to Serviced Loans:

(1) any failure by the Servicer to deliver to the Client any payment required hereunder, which failure continues unremedied for three Business Days after the date on which written notice of such failure, requiring the same to be remedied, shall have been given to the Servicer by the Client;

(2) any failure by the Servicer to observe or to perform in any material respect any covenant or agreement of the Servicer set forth in this Agreement, which failure shall continue unremedied for a period of 30 days after the earlier of (a) the date on which written notice of such failure, requiring the same to be remedied, shall have been given to the Servicer by the Client or (b) the date on which an officer of the Servicer responsible for servicing operations becomes aware of the failure to observe or perform such covenant or agreement;

(3)(i) the filing of a decree or order by a court having jurisdiction in the premises with respect to the Servicer or any substantial part of its property (a) for relief in an involuntary case under any applicable federal or state bankruptcy, insolvency or other similar law now or hereafter in effect, (b) appointing a receiver, liquidator, assignee, custodian, trustee, sequestrator or similar official for the Servicer or for any substantial part of its property, or (c) ordering the winding-up or liquidation of the Servicer’s affairs, and such decree or order shall remain undismissed, unstayed and in effect for a period of 60 consecutive days, or (ii) the commencement by the Servicer of a voluntary case under any applicable federal or state bankruptcy, insolvency or other similar law now or hereafter in effect, or the consent by the Servicer to the entry of an order for relief in an involuntary case under any such law, or (iii) the consent by the Servicer to the appointment of or taking possession by a receiver, liquidator, assignee, custodian, trustee, sequestrator or similar official for the Servicer or for any substantial part of its property, or the making by the Servicer of any general assignment for the benefit of creditors, or (iv) the failure by the Servicer generally to pay its debts as such debts become due, or (v) the taking of action by the Servicer in furtherance of any of the foregoing.

4

(DD) “Services” means those services to be provided by the Servicer pursuant to Sections 2.02, 2.11 and 5.03 hereof.

(EE) “Servicing Extract” means the report identified as “Servicing Extract” in Schedule C hereof.

(FF) “Servicing Reports” means those reports to be provided to the Client by the Servicer pursuant to Section 2.03 hereof.

(GG) “Statement of Work” means the Statement of Work included in Schedule B hereof.

(HH) “Student Loan” means a student loan made by the Originating Lender under the Program to finance or refinance a portion of a Borrower’s costs of attending a School.

(II) “Transferred Defaulted Loan” has the meaning assigned to such term in Section 5.03(C) hereof.

(JJ) “XES” means Xerox Education Services, Inc., a Delaware corporation (formerly known as ACS Education Services, Inc.).

Section 1.02 Definitions of General Terms

Unless the context clearly indicates otherwise, or may otherwise require, in this Agreement the terms “herein”, “hereunder”, “hereby”, “hereto”, “hereof” and any similar terms refer to this Agreement as a whole and not to any particular article, section or subsection thereof.

Unless the context clearly indicates otherwise, or may otherwise require, in this Agreement (i) references to articles, sections and other subsections, whether by number, letter or otherwise, are to the respective or corresponding articles, sections or subsections of this Agreement as such articles, sections or subsections may be amended from time to time; (ii) references to chapters, subchapters and sections of any public law or statute of the United States are to the respective or corresponding chapters, subchapters and sections as they may be amended from time to time; and (iii) the word “heretofore” means before the date of execution of this Agreement, the word “now” means at the date of execution of this Agreement, and the word “hereafter” means after the date of execution of this Agreement.

ARTICLE II

PROVISION OF SERVICES

Section 2.01 Loans Covered by this Agreement

The Servicer hereby agrees to provide the Services for all Student Loans that the Client, in its sole discretion, delivers to the Servicer for servicing hereunder.

5

Section 2.02 Services

(A) The Servicer shall service, administer and make collections on the Serviced Loans in accordance with the terms hereof. The Servicer shall provide the services described in Schedule B hereto with respect to Serviced Loans.

(B) In performing the Services, (i) the Servicer shall exercise commercially reasonable care and diligence and shall comply with the Program Requirements in all material respects, and (ii) if an inconsistency exists between the Program Requirements and the Statement of Work, the Servicer shall follow the Program Requirements.

(C) Except as otherwise provided in this Agreement, the parties expressly acknowledge that the Servicer shall have the right, but not the obligation (except as the Servicer may specifically agree), to give any notices to, comply with any requests or directions of, or otherwise be responsible for communicating or coordinating with any guarantor or surety of any Serviced Loans.

Section 2.03 Servicing Reports

(A) The Servicer shall provide via FTP and/or online self service to the Client and ITT periodic Servicing Reports described in Schedule C hereto.

(B) Except as otherwise provided in this Agreement, including without limitation Section 2.03(A) hereof and the Statement of Work, the Servicer shall provide all Servicing Reports, at the Servicer’s election, either (i) by delivery to the Client and/or ITT, as the case may be, as provided in Section 6.08 hereof or (ii) by making such Servicing Reports available to the Client and/or ITT, as the case may be, in electronic format (including on a server to which the Client and/or ITT, as the case may be, is granted access).

(C) The parties to this Agreement shall comply with all Applicable Laws, including (without limitation) those relating to privacy and information security, in connection with the provision, receipt, storage, and use of the Servicing Reports.

(D) The Servicer agrees to provide a Servicing Extract as of the end of each month on the first Business Day of the following month, provided that the failure to provide the Servicing Extract by the 5^th Business Day of the month following the month to which such Servicing Extract relates shall (subject to Section 5.04(A) hereof) be a material failure for purposes of Section 1.01(CC)(2) hereof.

Section 2.04 Manner of Performance of Services

The Servicer shall be entitled to determine the manner in which the Services are accomplished and shall have the right to effect such changes or modifications to its equipment, computer programs, reports, procedures and techniques as it deems necessary or advisable without the consent of the Client; provided, however, that such determination, changes or modifications shall not abrogate or in any way modify the Servicer’s obligations under this Agreement (including with respect to the standard of care relating to the servicing of the Serviced Loans). The Servicer shall notify the Client and ITT of any major systems modifications, such as replacing its hardware or software platforms.

6

Section 2.05 Safekeeping of Loan Documents

A copy of each Note and either originals, duplicate copies or other electronic documentation of all other material documents related to the Serviced Loans which are in the custody of the Servicer shall be maintained by the Servicer. The Servicer shall employ reasonable efforts, consistent with industry standards, to safeguard the Serviced Loan documentation from loss, damage or destruction due to fire, flood, theft, or other hazard. The Servicer shall execute backups of all of the electronic files relating to Serviced Loans to magnetic tape or other electronic media, and periodically rotate a copy of such electronic files to an off-site storage facility. Notwithstanding the foregoing, the Servicer may destroy physical loan documentation to the extent such destruction does not violate the Program Requirements, if adequate primary and back-up electronic records are maintained of such destroyed physical loan documentation to the extent required by the Program Requirements.

Section 2.06 Examination of Records

(A) The Client, ITT, and their respective agents, auditors, and consultants (each of which is referred to herein as an “Examiner”) will have the right, at any time and from time to time (subject to the limits set forth in Section 2.06(B) below), during normal business hours, with at least five Business Days’ notice, to examine, audit, and copy any and all of the Servicer’s records or accounts pertaining to any Serviced Loan, including loan documentation, and to interview or consult with the Servicer’s officers and employees as it deems necessary to determine compliance with this Agreement. Any such examination or audit shall be at the expense of the party on whose behalf it is conducted.

(B) Except during the continuance of a Servicer Default, each of the Client (and its agents, auditors and consultants) and ITT (and its agents, auditors and consultants) shall be limited to a single such examination or audit in any calendar year.

(C) Prior to granting access as provided in Section 2.06(A), the Servicer may require that any Examiner sign an agreement containing the confidentiality provisions set forth in Section 6.02(E) hereof.

Section 2.07 Appointment as Agent

The Client hereby appoints the Servicer as its agent solely for endorsing and depositing negotiable instruments (checks, money orders, etc.) made payable to the Client but in the possession of the Servicer for the purpose of crediting Borrower Accounts.

Section 2.08 Reports and Audits Relating to the Servicer

The Servicer shall provide to the Client and ITT in the manner provided in Section 2.03(B), by December 31 of each year, commencing 2012, a report prepared by independent certified public accountants selected by the Servicer, of a type II SSAE 16 audit.

7

Section 2.09 Additional Information and Actions

In addition to information otherwise required to be provided hereunder and actions otherwise required to be taken hereunder, from time to time upon request during the term of this Agreement, the Servicer shall submit such information and take such action as may be reasonably requested by the Client or ITT to assure that the Serviced Loans are maintained in a proper and secure condition.

Section 2.10 Servicer Holidays

No later than December 1 of each year, the Servicer shall provide the Client and ITT with its schedule of holidays for the ensuing year, which shall not include more than two days in any calendar year that are not holidays for national banks. The Servicer’s schedule of holidays for 2012 is attached as Schedule G.

Section 2.11 Deconversion of Loans from XES

(A) Commencing on the Effective Date and concluding not later than 60 days thereafter, the Servicer shall provide Services to the Client with respect to the deconversion of Student Loans from XES’ servicing system, except with respect to such Student Loans requiring additional, final disbursements (the “Additional Disbursement Loans”), and the transfer of servicing of those Student Loans, except those relating to the Additional Disbursement Loans, to the Servicer.

(B) Commencing on the date of the last disbursement with respect to Additional Disbursement Loans, and concluding not later than 60 days thereafter, the Servicer shall provide Services to the Client with respect to the deconversion of the Additional Disbursement Loans from XES’ servicing system, and the transfer of servicing of those Student Loans to the Servicer.

(C) The deconversion and transfer of the Student Loans described in this Section 2.11 shall proceed in accordance with the schedule set forth in Schedule H hereto, provided, however, that the dates set forth therein are subject to reasonable adjustment upon the written agreement of XES, the Client and the Servicer, so long as the deconversion and transfer of all of such Student Loans, including the Additional Disbursement Loans, is otherwise completed within the timeframes established under Sections 2.11(A) and (B) of this Agreement.

[The remainder of this page is intentionally left blank.]

8

ARTICLE III

COMPENSATION

Section 3.01 Amount of Compensation

(A) The Client shall pay or cause to be paid to the Servicer the fees and expenses specified in Schedule A hereto for the performance of the Services with respect to the Serviced Loans. The fees specified in Schedule A hereto shall remain fixed for the term of this Agreement, except as otherwise provided in subsection (B) below.

(B) If any of the Program Requirements are amended or otherwise changed (including any change in the interpretation or applicability of Applicable Laws) or if the Servicer agrees to perform additional services based upon the applicability or (in the case of laws that the Servicer has determined, based on the advice of counsel, are reasonably likely to be held to be applicable) potential applicability of other laws after the date of this Agreement so as to materially increase the costs or obligations of the Servicer in providing the Services hereunder, the Servicer shall be entitled to propose to the Client and ITT an amendment to this Agreement which would increase fees to offset the documented additional costs of complying with such amendment or change or performing such additional services, and if the parties are unable to agree upon such amendment within 60 days after the proposed amendment is sent to the Client and ITT, then the Servicer shall be entitled to terminate this Agreement upon 180 days’ prior written notice to the Client and ITT.

Section 3.02 Statements

The Servicer shall send to the Client a billing statement for the fees, expenses, and other amounts due (including pursuant to Section 6.05 hereof) pursuant to this Agreement with respect to each month. The Servicer shall transmit each billing statement no later than ten Business Days before the 27^th day of the following month; provided, however, that any delay in such mailing shall not relieve the Client of its obligation to pay the fees due hereunder.

Section 3.03 Due Dates for Payments

(A) Except as provided in Section 3.03(B), the Client shall pay the Servicer for Services rendered in each month on the 27^th day of the following month (or, if such day is not a Business Day, on the next Business Day). If the Servicer has timely submitted its billing statement, then except as provided in Section 3.03(B), the Client shall pay a late charge of 1.5% per month on any payment not received on such date until such amount is paid.

(B) In the event of any good faith dispute by the Client regarding any amount for the current billing period over $5,000 billed by the Servicer, the Client may, by written notice to the Servicer detailing the grounds for the dispute, withhold payment of such disputed amount for a reasonable period pending resolution of the dispute, but shall pay the undisputed portion billed when and as due. Any amount in dispute that does not exceed $5,000 shall be paid as provided in Section 3.03(A). The parties will use best efforts to resolve any disputes within 90 days of the date payment would otherwise be due.

(C) Upon any termination of this Agreement, all fees, expenses, and other amounts owed to the Servicer hereunder shall become immediately due and payable.

9

ARTICLE IV

REPRESENTATIONS AND WARRANTIES

Section 4.01 Representations and Warranties of the Servicer

The Servicer hereby represents and warrants that it is duly organized and validly existing as a limited liability company in good standing under the laws of the state of Delaware.

Section 4.02 Representations and Warranties of the Client

The Client hereby represents and warrants that it is duly organized and validly existing as a limited liability company in good standing under the laws of the state of Delaware.

Section 4.03 Mutual Representations and Warranties

Each party hereby represents and warrants to the other as follows:

(A) It has the corporate power and authority to own its assets and carry on its business as contemplated by this Agreement, and to enter into, and perform in accordance with, the terms of this Agreement.

(B) It has, and its officers acting on its behalf have, the requisite corporate authority to engage in the transactions contemplated by this Agreement, and the execution and delivery of this Agreement, the consummation of the transactions herein contemplated and compliance with the terms, conditions and provisions of this Agreement do not and will not violate, conflict with or result in a breach of any of the terms, conditions or provisions of applicable law, its organizational and governing documents or any agreement or instrument to which it is a party or by which it is bound, or constitute a default thereunder; and it is not a party to or bound to any agreement or instrument or subject to any corporate restriction or judgment, order, writ, injunction, decree, law, rule or regulation which may materially and adversely affect its ability to perform its obligations under this Agreement.

(C) This Agreement constitutes a valid and binding obligation of such party, enforceable against it in accordance with its terms, except as such enforcement may be limited by applicable bankruptcy, insolvency, receivership, reorganization and other similar laws relating to creditors’ rights generally and to general principles of equity.

(D) It has obtained all consents, approvals, licenses, exemptions or authorizations of, or filings or registrations with, any government or governmental body which are required in connection with the execution and delivery of this Agreement and the Performance of its obligations hereunder, the failure to obtain which could materially and adversely affect its ability to perform its obligations under this Agreement.

10

(E) There is no pending action, suit, proceeding, inquiry or investigation with respect to which notice has been served upon it before any court, governmental or public entity or arbitrator against or affecting, directly or indirectly, it or any of its properties, which if adversely determined would have a material adverse effect on its ability to perform its obligations hereunder, and, to the best of its knowledge, no such action or proceeding has been threatened.

ARTICLE V

TERM AND TERMINATION

Section 5.01 Term of Agreement

Unless sooner terminated in accordance with the terms hereof, this Agreement shall remain in full force and effect with respect to all Serviced Loans from the date hereof until and including the Expiration Date.

Section 5.02 Termination

(A) The Client or ITT may terminate this Agreement, by written notice to the Servicer, (i) at any time after the occurrence and during the continuance of a Servicer Default or (ii) as provided in Section 5.04(A); provided, however, that such termination shall not take effect unless and until a successor servicer has been retained.

(B) The Servicer may terminate this Agreement as provided in Section 3.01(B) hereof; provided, however, that such termination shall not take effect unless and until a successor servicer has been retained.

(C) If (i) the Client fails to pay or cause to be paid any fees or other amounts required under Article III as and when due, or (ii) the Client fails to pay or cause to be paid any indemnity payment under Section 6.05(B) hereof when due, and such failure is not cured within 10 days after receipt by the Client of notice thereof, the Servicer may terminate this Agreement, by written notice to the Client and ITT.

(D) The Client or ITT may terminate this Agreement by 30 days’ written notice to the Servicer, upon the conditions specified in Schedule F; provided, however, that such termination shall not take effect unless and until a successor servicer has been retained.

Section 5.03 Termination with Respect to Specific Loans; Activities Relating to Defaulted Loans

(A) This Agreement shall cease to apply with respect to a Serviced Loan when such Serviced Loan is paid in full.

11

(B) If a Serviced Loan becomes a Defaulted Loan, the Servicer shall (i) perform collection activities on, or assign to one or more collection agencies, such Defaulted Loan, and (ii) continue to account for such Defaulted Loan. The Servicer shall transfer to the Client on a weekly basis an amount equal to 72.0% of the gross amounts received (prior to reduction for collection agency fees) with respect to all such Defaulted Loans, and shall retain the balance of such gross amounts received as its sole compensation for the collection and management of collection of, and accounting for, Defaulted Loans. The collection agencies utilized by the Servicer and any agreement under which such collection agencies operate must be approved by the Client and consented to by ITT

(C) The provisions of Section 5.03(B) of this Agreement may be terminated by the Client, with respect to any one or more Defaulted Loans, in its discretion, at any time and from time to time by written notice to the Servicer (each such Defaulted Loan, a “Transferred Defaulted Loan”). With respect to any such termination for which the Client provides notice to the Servicer on or before the fifth Business Day preceding the end of a calendar month, the Servicer shall no longer be responsible for reporting or accounting for such specific Transferred Defaulted Loans following the fifth Business Day of the immediately following calendar month, subject to the Servicer having complied with the next sentence with respect to such Transferred Defaulted Loans. With respect to any Transferred Defaulted Loan for which the Client provides notice to the Servicer on or before the fifth Business Day preceding the end of a calendar month, the Servicer shall provide to the Client within five Business Days of the immediately following calendar month the Claims Processing Report (as defined on Schedule C hereto) and any other information the Client requests relating to those Transferred Defaulted Loans. With respect to any Transferred Defaulted Loan for which the Client provides notice of termination to the Servicer during the last four Business Days of a calendar month, the Servicer shall continue to provide the activities required by Section 5.03(B) of this Agreement through the end of following calendar month and shall provide the reporting described in the preceding sentence by the fifth Business Day of the second month thereafter, after which reporting the Servicer shall no longer be responsible for reporting or accounting for such specific Transferred Defaulted Loans.

Section 5.04 Impossibility of Performance; Disaster Recovery Plan

(A) If the Servicer is rendered unable, wholly or in part, by a force outside of its control (including but not limited to acts of God, strikes, lockouts, riots, acts of war or terrorism, epidemics, fire, communication line or power failure, earthquakes or other disasters) to carry out its obligations under this Agreement, the Servicer shall give to the Client and ITT prompt written notice to that effect. Thereupon, the affected obligations of the Servicer shall be suspended so long as the Servicer is unable to so perform any affected obligation; provided, however, the Client may terminate this Agreement if such inability or suspension continues for more than one week and results in a failure by the Servicer to perform its basic functions under this Agreement.

(B) The Servicer will maintain a disaster recovery plan, which is designed to achieve, within commercially reasonable parameters, the continuous operation, and in the event of a material interruption, the recovery of all material business functions needed to meet the Servicer’s obligations under this Agreement. The Servicer’s disaster recovery plan will include, at a minimum, procedures for back-up and restoration of operating and administrative equipment and computer systems; procedures and third party agreements for replacement equipment (e.g., computer systems) and procedures and third party agreements for off-site production facilities. The Servicer will provide the Client and ITT with a disaster recovery plan summary and test results of such plan no less frequently than on an annual basis and will make its disaster recovery plan available for the Client’s and ITT’s review at Servicer’s site upon reasonable request, at no charge. If any event described in Section 5.04(A) occurs, the Servicer shall service the Serviced Loans in the same manner as it services other private student loans pursuant to the Servicer’s business continuity and disaster recovery plan.

12

Section 5.05 Deconversion Services

(A) Upon the expiration or termination of this Agreement, the Servicer shall provide the Deconversion Services.

(B) The Deconversion Services shall be provided at the Servicer’s sole cost and expense, unless this Agreement is terminated by the Servicer as provided in Section 5.02(C) hereof, in which case the Deconversion Services shall be at the Client’s cost as provided in Schedule A. The Servicer shall have no obligation to provide the Deconversion Services in such case unless it shall have reasonable assurance that it will be paid for such Deconversion Services in accordance with the terms hereof.

Section 5.06 Forwarding of Payments and Communications

After termination of this Agreement pursuant to Section 5.02 or termination with respect to Defaulted Loans pursuant to Section 5.03, the Servicer shall forward to the Client payments and communications (including, but not limited to, letters, notices of death, disability or change of address, adjudication of bankruptcy and similar documents, and forms requesting deferments or forbearance of repayment or loan cancellations) received with respect to Student Loans that were formerly Serviced Loans, promptly upon Servicer’s determination that the payments or communications relate to such Student Loans.

ARTICLE VI

MISCELLANEOUS

Section 6.01 Limited Agency Powers

The Servicer is an independent contractor and is not, and will not hold itself out to be, the agent of the Client except with respect to the limited agency powers specifically provided herein.

Section 6.02 Confidentiality; Trade Secrets and Proprietary Information

(A) This Agreement is considered confidential information of each party and shall not be copied or disclosed by any party to anyone other than employees, officers, directors, counsel, accountants, advisors, and agents whose responsibilities require such disclosure, to affiliates and potential purchasers of such party, to any governmental agency having supervision over such party, or as otherwise required by law, without the express written consent of the other party.

13

(B) Except as provided in this Section 6.02(B), the Servicer (i) will use the Customer Information solely for the purpose of performing its duties and exercising its rights under this Agreement, (ii) will not use the Customer Information for any other purpose, and (iii) will not disclose or communicate the Customer Information, directly or indirectly, to any third party except as may be necessary or appropriate for the performance of its duties and the exercise of its rights hereunder. The Servicer further agrees that, except as described in this Section 6.02(B), the Customer Information will be disclosed only to such of its employees, agents and contractors who need access to the Customer Information for the purposes described above. The foregoing shall not restrict the Servicer’s use of Customer Information in connection with, or relating to (1) persons who have become “consumers” (within the meaning of the Gramm-Leach-Bliley Act) of the Servicer or (2) data gathering and analysis done by the Servicer regarding loan repayment that does not contain individual borrowers’ nonpublic personal information.

(C) The Servicer shall implement and maintain information security measures to protect against unauthorized access to or use of Customer Information, and meet the objectives of the Interagency Guidelines Establishing Information Security Standards, Final Rule (12 C.F.R. Part 30, Appendix B), and the Federal Trade Commission’s Standards for Safeguarding Customer Information (16 C.F.R. part 314 ), including without limitation: (i) access controls on information systems; (ii) access restrictions at physical locations containing Customer Information; (iii) encryption of electronic Customer Information communicated via CommonLine^SM, secure connections for website access, and with respect to other transmissions by the Servicer of Customer Information compliance with the Servicer’s safeguards program as communicated to the Client and ITT from time to time; (iv) monitoring systems and procedures to detect attempts to access servers on which Customer Information resides; (v) measures to protect against destruction, loss or damage of Customer Information due to potential environmental hazards such as fire and water damage or technological failures; (vi) testing of key controls, systems and procedures; and (vii) monitoring the information security policies of any of its subcontractors that are provided with Customer Information.

(D) The Client hereby acknowledges that all materials, procedures, written instruments, files and records (except specific Borrower files and records) developed by the Servicer in connection with the Services and the performance of its other obligations hereunder are and shall be treated as proprietary in nature. The Client shall not have or acquire any proprietary or any other right whatsoever in any such materials, procedures, written instruments, files, or records developed by the Servicer.

(E) Subject to any disclosure obligation imposed by law or regulation, any examinations or audits of the Servicer conducted under Section 2.06, any financial statements or other information of the Servicer provided under Sections 2.08 or 2.09, any business continuity and disaster recovery plan of the Servicer, any other information disclosed by or on behalf of the Servicer in connection herewith or therewith, and any copies of documents made or other documents generated in connection herewith or therewith, shall be treated as confidential by the Client and each Examiner and used only for the purpose of managing and administering the Serviced Loans and determining compliance by the Servicer hereunder. No documents or information provided in connection therewith shall be delivered by the Client or the Examiner to any third party other than the Client’s accountants, attorneys, or other professional advisors (in each case, which has agreed in writing for the Servicer’s benefit to be bound by confidentiality provisions set forth in this Section 6.02) or governmental agencies having jurisdiction over the Client. The Client and each Examiner will adopt procedures and safeguards to protect against unauthorized disclosure of such documents or information, and shall, at a minimum, exercise the same standard of care to protect the Servicer’s confidential or proprietary documents and information from unauthorized disclosures as is used to protect its own confidential or proprietary documents and information from unauthorized disclosure.

14

Section 6.03 Amendments; Entire Agreement; Prior Agreements

(A) This Agreement may not be amended or modified in any respect except by an instrument in writing signed by each party to be affected thereby and communicated in accordance with Section 6.08 hereof regarding notices and as otherwise provided in this Agreement.

(B) This Agreement shall be the entire agreement between the parties with respect to the subject matter hereof and supersedes all prior written or oral agreements, representations, statements, negotiations, and undertakings among any of the Servicer and the Client with respect to the Services. In the event of an inconsistency between the provisions of the Schedules attached hereto and the provisions of Articles I through VI of this Agreement, the Schedules shall prevail.

Section 6.04 Assignment and Subcontracting

(A) Except as provided in subsection (B), (C), and (D) below, this Agreement may be assigned by any party only with the consent of the other parties.

(B) The Servicer may assign its rights to receive payments under this Agreement and/or may subcontract its obligations hereunder without the consent of the Client or ITT; provided, however, that (except as provided in subsection (C) below) unless the Client and ITT have otherwise agreed, the Servicer (i) shall not subcontract its obligations in their entirety, (ii) shall not subcontract its management and oversight of servicing operations, and (iii) shall remain responsible for the performance of all of the Services with respect to the related Serviced Loans in accordance with the standards set forth herein.

(C) The Servicer may, without the consent of the Client or ITT, assign its rights under this Agreement to an affiliated entity; provided, however, that unless the Client and ITT have otherwise agreed, First Associates Loan Servicing, LLC shall remain responsible for the performance of its duties hereunder.

(D) The Client may assign its rights hereunder to an assignee of Serviced Loans that assumes the related obligations of the Client hereunder.

(E) All covenants and agreements herein contained shall extend to and be obligatory upon all assigns and successors of the respective parties hereto.

15

Section 6.05 Indemnity

(A) Servicer Indemnification. The Servicer agrees to indemnify and hold the Client and its directors, officers, employees and agents harmless of, from and against any and all loss, liability, cost, damage or expense, including reasonable attorneys’ fees and disbursements (collectively, “Damages”), resulting from any misrepresentation, any breach of warranty, or non-fulfillment of any agreement or covenant on the part of the Servicer under this Agreement.

The Servicer assumes no responsibility or liability for the failure of:

(1) any originator or servicer (in either case, other than the Servicer) to exercise reasonable care or due diligence in making or servicing a Serviced Loan prior to the Servicer assuming responsibility for providing Services with respect to such Serviced Loan;

(2) any Borrower or co-signer to repay a Serviced Loan; provided, however, that with respect to any former Serviced Loan that has been deconverted in connection with the termination of this Agreement pursuant to Section 5.02, the Servicer’s indemnification obligation shall apply to the amount of any loss of the legal right to collect, or reductions in any amounts payable on or with respect to, such former Serviced Loan that result, directly or indirectly, from the Servicer’s failure to provide any Servicing Extract, as provided in Section 2.03(D) hereof, or the Deconversion Services, as provided in Section 5.05 hereof, to the extent such loss or reductions result from the application of Applicable Law to such former Serviced Loan, as serviced by a successor servicer;

(3) the terms and conditions of any Serviced Loan or the Program Guidelines to comply with applicable law; or

(4) any Truth-in-Lending disclosure to comply with the Federal Truth-in-Lending Act or Regulation Z unless the Originating Lender has provided, and the Servicer fails to comply with, express instructions concerning completion of the notice.

(B) Client Indemnification. The Client agrees to indemnify and hold the Servicer and its directors, officers, employees and agents harmless of, from and against any and all loss, liability, cost, damage or expense, including reasonable attorneys’ fees and disbursements (collectively, “Costs and Damages”), resulting from:

(1) Any failure of the Client to pay the fees and expenses provided for under Article III hereof;

(2) Any breach by the Client of its obligations hereunder;

(3) Any violation of the Fair Debt Collection Practices Act or other borrower or consumer protection laws based in whole or in part on collection activities conducted by any insurer or guarantor (which terms do not include ITT) of a Serviced Loan or Defaulted Loan (including the Servicer’s failure to comply with instructions provided to any such other party by or on behalf of a Borrower); or

16

(4) The Servicer’s performance of the Services hereunder (including, without limitation, any Costs and Damages arising from the Servicer being made a defendant in or being required to appear in any legal action or other proceeding relating to the Serviced Loans or Defaulted Loans), except to the extent arising from the Servicer’s (i) negligence, (ii) willful misconduct, or (iii) breach of the terms of this Agreement (including its obligation to comply with the Program Requirements).

(C) Indemnification Conditioned. Notwithstanding the foregoing in this Section 6.05, the obligation of any party to indemnify and hold harmless any other party as an indemnified party is expressly conditioned on such indemnified party fully satisfying all of the following conditions: (i) providing the indemnifying party with prompt, written notice of any such Damages, or any claim that could result in any such Damages (provided that failure to provide notice will not relieve an indemnifying party of its obligations under this Section 6.05 except to the extent the indemnifying party is prejudiced by such failure) and (ii) cooperating fully with the indemnifying party and its legal representatives in the investigation and defense of any and all such claims. The indemnified party shall have the right to employ separate counsel at its own expense to participate in the defense of any action with respect to which such party is indemnified. The indemnifying party shall not compromise any claim subject to indemnification if such compromise requires anything other than the payment of money, without the prior written consent of the indemnified party.

(D) Liability Limited. Notwithstanding the foregoing in this Section 6.05, in no event shall any party be liable for any special, consequential, exemplary or punitive damages with respect to any matter whatsoever arising out of this Agreement; provided that the foregoing shall not relieve any party of its obligation to indemnify another party against any such damages awarded to a third party.

Section 6.06 Insurance

The Servicer will, at all times during the term of this Agreement and at its own expense, cause to be carried and maintain in full force and effect insurance in such amounts and with such terms as follow:

(i) comprehensive general liability with limits not less than $1 million per occurrence and $2 million annual aggregate, with coverages to include contractual liability, personal injury and advertising injury;

(ii) statutorily required worker’s compensation;

(iii) employer’s liability of $1million per employee/occurrence;

(iv) crime liability of $500,000 per occurrence; and

17

(v) umbrella liability with limits not less than $3 million per occurrence and aggregate.

The Servicer will provide certificates of insurance to the Client and ITT evidencing compliance with the above requirements at the time of execution of this Agreement and, upon request, on an annual basis thereafter as the policies renew or expire.

Section 6.07 Governing Law

This Agreement shall be interpreted under and governed by the laws of the State of Delaware, without regard to conflict-of-laws rules.

Section 6.08 Notices

Notices, requests or demands which may or are required to be given by any party hereunder shall be in writing or by e-mail and shall be deemed to have been properly given upon actual receipt or (i) seventy-two (72) hours after being sent by certified mail, return receipt requested, (ii) forty-eight (48) hours after being sent by national overnight courier, or (iii) upon receipt by the sender of electronic or oral confirmation of receipt of an e-mail message by the intended recipient.

All such notices and other items required to be delivered hereunder shall be addressed as follows:

If intended for the Client:

Student CU Connect CUSO, LLC

8575 West 110^th Street, Suite 220

Overland Park, KS 66210

Attention: Program Administrator

Telephone: (913) 890-8020

Facsimile: (913) 322-3770

Email: scuc@rochdalegroup.com

If intended for the Servicer:

First Associates Loan Servicing, LLC

15373 Avenue of Science, Suite 300

San Diego, CA 92128

Attention: Executive Vice President

Telephone: (858) 999-3064

Facsimile: (858) 999-3064

Email: lchiavaro@1stassociates.com

18

Any party may change the address to which communications to it are to be sent by notice to the other parties given as aforesaid.

Section 6.09 Severability

Any provision of this Agreement which is prohibited, unenforceable or not authorized in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition, unenforceability or lack of authorization without invalidating the remaining provisions hereof or affecting the validity, enforceability or legality of such provision in any other jurisdiction.

Section 6.10 Survival

All covenants, agreements, representations, warranties and indemnities contained in this Agreement shall survive the termination of this Agreement as covenants, agreements, representations, warranties and indemnities for any occurrence or failure occurring during the term of this Agreement.

Section 6.11 Waiver of Rights

No failure by any party to exercise, or any delay in exercising, and no course of dealing with respect to any right of such party or any obligation of any other party under this Agreement shall operate as a waiver thereof, unless, and only to the extent, agreed to in writing by such party. Any single or partial exercise by any party of its rights shall not preclude such party from any other or further exercise of such right or the exercise of any other right. Any single or partial waiver by any party of any obligation of any other party under this Agreement shall constitute a waiver of such obligation only as specified in such waiver and shall not constitute a waiver of any other obligation.

Section 6.12 Cumulative Remedies

No remedy by the terms of this Agreement conferred upon or reserved to the Servicer or the Client is intended to be exclusive of any other remedy, but each and every such remedy shall be cumulative and in addition to every other remedy given under this Agreement or existing at law or in equity or by statute on or after the date of this Agreement including, without limitation, the right to such equitable relief by way of injunction, to prevent the breach or threatened breach of any of the provisions of this Agreement or to enforce the performance hereof.

Section 6.13 Arbitration

Should any dispute develop between the parties arising under or in connection with this Agreement, or relating to the breach hereof or a claim for damages or losses relating hereto, the parties shall make a good faith effort to negotiate a mutually acceptable resolution of the dispute. Any such dispute that the parties are unable to resolve pursuant to the preceding sentence shall be resolved through arbitration by three (3) neutral arbitrators selected under the rules of the American Arbitration Association, and the arbitration shall be conducted in San Diego, California, in accordance with the procedure set forth below, and otherwise under the rules of said Association.

19

Within thirty (30) days of service and filing of a notice of a demand for arbitration, the claimant shall produce to the respondent all documents in the claimant’s possession that are relevant to the dispute. The claimant shall serve and file a written statement explaining its claim within forty-five (45) days of the notice for arbitration; the respondent shall respond, and shall produce to the claimant all documents in the respondent’s possession that are relevant to the dispute, within thirty (30) days thereafter; and the claimant may reply within fifteen (15) days of the response. After this period of limited discovery, a hearing before the arbitrators will occur. The arbitrators shall give written notice to the parties stating their determination and shall furnish to each party a signed copy of such determination. The determination of the arbitrators shall be conclusive and binding upon the parties and judgment upon the same may be entered in any court having jurisdiction thereof.

The expenses of arbitration shall be borne equally by the parties thereto, or as the arbitrators shall otherwise determine, and the arbitrators shall have the authority to award costs to the prevailing party.

Section 6.14 Headings

The Article and Section headings contained in this Agreement are for convenience only and shall not be deemed part of this Agreement.

Section 6.15 Execution in Counterparts

This Agreement may be executed in one or more counterparts, each of which shall be deemed an original and all of which shall be deemed to constitute but one and the same instrument.

Section 6.16 Certain Activities in U.S. Only

The Servicer will perform all Services hereunder that involve communications with a Borrower or a School from locations in, and by employees or agents located in, the United States, except in the case of Services with respect to a Borrower whose residence is located outside the United States.

Section 6.17 Third Party Beneficiary

ITT is an express, designated third-party beneficiary of this Agreement, with full power to enforce the terms hereof as if it were an original party hereto with the same rights hereunder as those of the Servicer and the Client. This Agreement may not be amended, modified, terminated or assigned without ITT’s prior written consent, which shall not be unreasonably withheld.

[The remainder of this page is intentionally left blank.]

20

IN WITNESS WHEREOF, the Servicer and the Client have executed this Agreement as of the date and year first above written.

FIRST ASSOCIATES LOAN SERVICING, LLC
By:	/s/ Larry Chiavaro
	Larry Chiavaro Executive Vice President

STUDENT CU CONNECT CUSO, LLC
By:	/s/ Dan Kampen
	Dan Kampen Program Administrator

21

SCHEDULE A

FEE SCHEDULE

(A) Basic Servicing Fees:

Monthly Charge per Serviced Loan In:	Amount of Charge
Interim Period	$	2.25
Deferment Period	$	2.25
Forbearance Period	$	2.25
Grace Period	$	4.00
Repayment Period Current	$	8.00
Repayment Period from 1 through 30 days delinquent	$	7.00
Repayment Period from 31 through 60 days delinquent	$	6.00
Repayment Period from 61 through 90 days delinquent	$	5.00
Repayment Period from 91 through 120 days delinquent	$	5.00
Repayment Period from 121 through 150 days delinquent	$	5.00
Repayment Period from 151 through 180 days delinquent	$	5.00

(B) The Servicer shall transmit all late charges received from the Borrowers to the Client. The Client shall pay to the Servicer a “Monthly Late Charge Fee” in an amount equal to the aggregate amount of late charges transmitted to the Client by the Servicer in the preceding month. The Servicer will be entitled to retain any forbearance processing fees and returned payment (NSF, stop payment, etc.) charges assessed against and collected from Borrowers.

(C) The Servicer shall be reimbursed for the following out-of-pocket expenses:

(1) mailing costs at $0.25 per letter plus postage, with a maximum of two letters per month for Serviced Loans in Repayment and one letter per month for Serviced Loans in the Grace Period;

(2) messaging costs on Serviced Loans in the Grace Period or in Repayment, with a maximum total cost of $3,500 per month; and

A-1

(3) skip tracing costs on Serviced Loans, with a maximum total cost of $6,000 per month. A full portfolio skip trace will be completed at the deconversion of loans from XES as described in Section 2.11 hereof, but will be covered by the conversion fee described below in Paragraph H of this Schedule A.

(D) Defaulted Loans will be disposed of or managed as directed by the Client pursuant to Section 5.03 of this Agreement and will not be subject to any per loan charge or compensation other than that provided for in Section 5.03 of this Agreement.

(E) Additional activities, including development of additional reports, may be provided and billed as agreed upon between the parties.

(F) A mutually agreed bonus compensation structure for the Servicer will be determined within three months of the Effective Date in writing by the Servicer and the Client, with the prior consent of ITT.

(G) Deconversion fees. If this Agreement is terminated by the Servicer as provided in Section 5.02(C) hereof, the Client will pay to the Servicer a deconversion fee of $25 per Borrower with respect to the Serviced Loans for which Deconversion Services are provided.

(H) Conversion fees. There will be a client set-up and portfolio conversion fee (one-time fee) of $30,000 in connection with the deconversion of Student Loans from XES as described in Section 2.11(A) hereof. For all new Student Loans added after the deconversion of Student Loans from XES as described in Section 2.11(A) hereof, including Student Loans deconverted from XES as described in Section 2.11(B) hereof, there will be a new loan boarding fee of $5.00 per loan file.

A-2

SCHEDULE B

SERVICES

The Servicer shall provide the following Services:

1. Receive and load electronic loan data onto the Servicer’s servicing system. Create and maintain electronic files and records pertaining to the Serviced Loans.

2. Update enrollment data, including by periodic monitoring of, and receipt of data from, the clearinghouse; convert Serviced Loans to Repayment in accordance with Program Guidelines.

3. After the Interim Period for a Serviced Loan ends, (i) establish a Repayment Schedule for such Serviced Loan consistent with the Note terms, and (ii) (subject to Section 6.05(A)(4) hereof) send to the Borrower a Truth-in-Lending repayment disclosure (to the extent required by the Truth-in-Lending Act).

4. Calculate and apply origination fee (if any) and interest rate as in effect at any given time, capitalize interest on a monthly basis when applicable, and recalculate monthly payment amounts on a quarterly basis during the Repayment Period, all pursuant to the Program Guidelines.

5. Grant Forbearance Periods to Borrowers consistent with the Program Guidelines.

6. During Repayment, provide monthly billing statements to Borrowers for principal and interest due.

7. Respond to inquiries and communications from Borrowers, Schools, the Client, and ITT, and communicate with Borrowers, Schools, the Client, ITT and others to the extent necessary to appropriately provide Services. Provide telephone and internet customer service options for Borrowers.

8. Process Borrower payments on Serviced Loans promptly, and set up automatic bank account debit loan payments upon Borrower request.

9. Remit payments received (net of any reversals) on Serviced Loans to the Client (or the assignee of the Serviced Loan) on a weekly basis.

10. Prepare and send Internal Revenue Service Forms 1098 to Borrowers for which tax documentation is provided in connection with their Serviced Loans.

11. Perform collection calls and send delinquency notifications to delinquent Borrowers in accordance with the Program Guidelines.

12. Provide skip tracing activities in accordance with the Program Guidelines.

B-1

13. Report repayment performance to credit reporting agencies in accordance with the Program Guidelines.

14. Send annual privacy policy notices on behalf of the Client.

15. Other services specified to be performed by the Servicer (but not the Origination Agent) in the Program Guidelines and the Statement of Work below.

B-2

STATEMENT OF WORK

For purposes of this Statement of Work, “FA” means the Servicer. Subject to the terms of this Agreement and in addition to the Services described elsewhere in this Agreement, the Servicer shall provide the following services to the Client. The Services shall consist of the duties stated herein and referenced elsewhere in this Agreement, as they may evolve during the term of this Agreement or be supplemented, enhanced, modified or replaced in accordance with the provisions of this Agreement.

Definitions: Terms

Term	Description
Standard Electronic files to be transferred to or from FA	•   Credit Bureau Reporting Files (Experian, Equifax, or Transunion) •   Lockbox Files (retail and wholesale) •   Western Union Quick Collect File •   Western Union Phone Pay File •   ACH File •   New Loan Boarding File (Origination system file) •   Data extract File •   Returned Item File (if applicable) •   Deboarding File
IVR	Interactive Voice Response system, which is component of the In Contact platform, a product licensed by FA.

Hours of Operation

FA’s installment loan servicing center hours of operation are: Monday through Friday 6:00 am to 5:00 pm (PST), on each Business Day.

Availability of FA’s Computer System:

Client may have access to FA’s Computer System whenever FA, at its discretion, has the Computer System up and available (which is typically during normal hours of operation). In some circumstances, FA may need to make unscheduled maintenance to the Computer System and for such an event FA will provide as much notice as commercially practical to the scheduled event. Access to FA’s systems may require Client to purchase and agree to certain license fees.

1. System Access and Support:

System Access and Support:

• FA will be responsible for support and maintenance of FA’s information security, physical security and contingency planning infrastructure for Client’s program.

• FA will provide Technical Help Desk support.

• FA will provide access to the Computer System if required.

• FA will be responsible for installation and ongoing maintenance of a telecommunication line from FA to a designated Client location (if applicable).

• FA will support and process incoming and outgoing file transfers.

• FA will be responsible for daily and month-end production cycle administration.

• FA will be responsible for installation and testing of new versions/upgrades.

• FA will support on-line viewing of system-generated Reports.

B-3

• FA will be responsible to produce and report customer performance data to all three credit bureaus.

• FA will be responsible for production of automated customer notices, letters and monthly billing statements.

• FA will maintain appropriate disaster recovery and business resumption plans.

2. Product Setup and Implementation

• FA will work with Client to establish telecommunications and technical interface requirements.

• FA will provide project management resources to implement Client’s program.

• FA staff will work with Client to perform the tasks necessary to implement program.

• FA will work with Client on branding requirements for notices, letters, billing statements and customer service. Notices will be in English. A quote can be provided for notices, letters and statements in languages other than English.

• FA uses California Bank & Trust (CB&T) as its standard Lockbox provider. FA will test standard CB&T lockbox file interfaces using Client’s custom billing statement. Client may incur additional implementation cost and/or servicing cost when using a non-standard FA lockbox provider.

• FA will provide its standard IVR functionality. FA will customize IVR recorded messages to meet Client branding requirements.

• FA shall provide the Servicing Reports as required by Section 2.03 of this Agreement. Client also can request the development of custom reports for FA to develop. FA will provide a quote for any custom report requested by Client.

3. Client Support (Account Manager)

• FA will name one or more designated account manager(s) to be Client’s principal contact with FA.

• FA’s designated account manager(s) will focus on Client’s current and future requirements.

• FA’s designated account manager(s) will assist in the development of expanded business opportunities for Client.

• FA’s designated account manager(s) will obtain sign-off from Client on decisions, specifications, outputs, and results. If there are recommended changes, each party must approve the changes.

• FA’s designated account manager(s) will be responsible for Client invoice issues.

• FA’s designated account manager(s) will communicate on a frequent basis to review program performance and address any related questions or concerns.

4. Training

• FA shall provide as much training as necessary to Client during the program launch on all related systems (if applicable).

• Client may arrange for FA trainers to come to a Client site. FA will be reimbursed for all travel costs (as provided in this Agreement) and FA personnel at the daily rate per the contract hourly rate schedule. FA will book airfare within one business day of notice from Client to maximize airline ticket discounts.

• Training at Client facilities requires a four-week notice prior to the required training. FA will try to accommodate shorter notice if trainers are available.

5. Loan Boarding & Quality Assurance-Post Funding

• FA will enter all Loan information into their system through an electronic feed (electronic boarding) from XES and, if applicable, the originator.

• FA will receive and verify incoming new Loan files to electronic feed or transmittal report.

• FA will perform statistical quality control review of data on all new Loans electronically boarded and correct errors.

• FA will generate a Welcome Letter for each new Loan (using Client approved text).

• FA will provide Client’s privacy policy, as applicable, in the Welcome Letter or first customer invoice, whichever is sent first. If Client request FA to provide an opt in/opt out program, FA will provide a quote to do so.

B-4

• FA can perform contract verification calls and welcome calls on new Loans (using Client approved script). FA can provide client a quote to provide these additional services.

• FA will incorporate all mutually agreed guidelines, as provided by either Client or FA, into the document review/edit process.

6. Customer Service

• FA will establish a Client US toll-free customer service number.

• FA will have agents available to respond to borrower questions during our normal business hours.

• If Client or Client’s designee is performing collection services, FA will establish a mechanism to automatically transfer all calls from delinquent Obligors to Client or Client’s designee.

• FA will establish a designated Client IVR service. FA’s standard IVR service is in English. FA can provide a quote for IVR messaging in Spanish.

• FA will provide Client’s borrowers access to FA’s IVR for balance inquiries, general payment information, statement requests and pay-by-phone options.

• FA will process customer correspondence received from borrowers regarding their Loan Accounts.

• FA will process and produce requests for new billing statements.

• FA will process name and address changes received by FA.

• FA will provide Loan payoff quotes.

• FA will research and resolve payment disputes.

• FA will process requests for auto debit payments from the borrower’s account.

• FA will process return mail.

• FA will provide Client’s privacy policy to all obligors on an annual basis and at such other times as FA is directed by Client.

• If applicable, FA will provide an opt in/opt out telephone number to track and notate customer privacy preferences. FA can provide a quote to support the option of an opt in/opt out service.

• FA will establish a designated post office box for inbound correspondence.

7. Paid Out Account Processing

• FA will identify paid-off Accounts.

• FA will verify that payoff funds remain clear.

• FA will accommodate state mandated minimum finance charges for early payoffs.

• FA will handle and resolve borrower’s inquiries on status of credit balance refund. School refunds will be handled through non-cash transactions on the FA’s Loan Servicing system. ITT will notify FA through an electronic transmittal of any loan refunds that need to be processed. FA will process the refunds and reflect those amounts within the monthly reports.

• FA will send credit balance amount to borrower on FA check stock.

8. Charged Off Account Processing

• FA will provide extract file of charged off Accounts on a regularly scheduled basis to third party deficiency collection agencies (if applicable).

• FA will provide research assistance, if needed, on Account payment history

• If requested, FA can provide a quote to support payment transaction services to Client on deficiency Accounts.

9. Delinquency and Collections

• FA shall create collection activity procedures and strategy in consultation with Client, with ITT’s prior consent. The FA system will be utilized in performing collection activity.

• FA will perform collection activity including calling and mailing.

B-5

Collection activity functions will include but not be limited to FA’s performance of the following:

Delinquency Range	Activity Level
1-30	Additional skip trace Minimum 8 contact attempts
31-60	Minimum 8 contact attempts
61+	Minimum portfolio average 6 contact attempts per month
Monitoring	Minimum 6 contact attempts per quarter

• Contact attempts may be in the form of physical or electronic correspondence, automated outbound voice messaging, predictive dialing, or agent initiated calls.

• FA will initiate skip trace activity at boarding for Loans converted in batch. FA will initiate skip tracing activities when unable to contact the borrower with existing contact information.

10. Payment Processing (Payment Processing assumes use of FA’s standard lockbox provider)

ACH PAYMENTS

FA will handle payments received through automatic deduction of the customer’s DDA account and will perform the following:

• Originate payment file for borrowers who authorize a direct debit to their bank account

• Post payment to borrower’s Loan

• Resolve any payment rejects

• Provide ACH form to borrower on request for auto debit

• Input and maintain ACH debit information for borrowers

CREDIT CARD PAYMENTS

FA will handle payments received through automatic deduction of the customer’s account and will perform the following:

• Originate payment file for borrowers who authorize a direct billing to their credit card

• Post payment to borrower’s Loan

• Resolve any payment rejects

• Provide form to borrower on request for credit card billing

• Input and maintain credit card information for borrowers

LOCKBOX PAYMENTS

FA will handle payments received by the lockbox and will perform the following:

• Establish a separate Client owned lockbox for Client accounts

• Receive and process a lockbox file each business day (including Saturday, if volume dictates)

• Reconcile any payment rejects posted by the Lockbox Processor

WESTERN UNION PAYMENTS

FA will handle Western Union payments in the following manner:

• Establish a separate Western Union code city for Client

• EDI will be received daily, Monday through Saturday, to post payments transmitted

• Any payment application rejects from EDI will be processed next business day

B-6

PAYMENTS RECEIVED VIA STREET ADDRESS

FA will handle payments received at our San Diego, CA location in the following manner:

• Process regular/irregular Loan payments

• Identify and process rejected Loan payments

• Clear Suspense/Exception items

BANK RETURN ITEMS

FA will handle return items in the following manner:

• Process return items daily as received in an electronic feed from depository financial institution

• Provide instruction to lockbox bank to process return items twice, upon Client instructions

• Institution account number will be verified for each return item

PAYMENT RESEARCH

FA will handle payment research in the following manner:

• Perform payment research

• Log information onto the research tracking system

• Assign research items to members of the research staff

• Investigate and resolve research items

• Provide research reporting

If the Servicer develops other payment processes or channels and makes such processes or channels available to its other clients, the Servicer shall also make them available to the Client.

11. Daily System Reconciliation

• FA will perform a daily reconciliation of loan activity to cash receipts and provide Client with a daily report of all credit card or ACH payments received by FA.

• All payments received by FA will be forwarded to Client on a weekly basis via ACH or wire transfer.

• FA will document and track rejected payment transactions

• FA will document and track payment exception items.

• FA will maintain and age exception items in an exception database.

• FA will monitor and report aged suspense items.

• FA will reconcile open and cleared adjustment items and monitor open items listing.

12. Accounting/Reporting

• FA will conduct monthly reconciliation of bank accounts.

• FA will confirm funds transfer and remittance to accounts designated by Client.

• FA shall provide the Servicing Reports as required by Section 2.03 of this Agreement at no charge. Client also can request the development of custom reports for FA to develop. FA will provide a quote for any custom report requested by Client if not otherwise required by Section 2.03 of this Agreement.

• FA will make available to Client its standard system reports in electronic form. Standard system reports shall be provided to Client at no charge. Additional FA developed reports requested by Client and not otherwise required by Section 2.03 of this Agreement shall be charged to Client on a time plus materials basis.

B-7

SCHEDULE C

REPORTS

Item	Report Name	Report Description	Dissemination Method	Frequency
1	Servicing Extract (similar to “Ad Hocs-aka...FA Month-End CUSO file”)	This report is a data snapshot of all Serviced Loans and Defaulted Loans at the individual loan level serviced by the Servicer, and will be in a format mutually agreed upon by the Servicer and the Client.	box.com or equivalent	Monthly (or upon request)
2	Collections Detail Loan Report	This Report lists loans in a delinquent status grouped by the different delinquency buckets (30 days, 60 days, 90 days, etc.).	box.com or equivalent	Monthly
3	Activity Detail File-Cash	An activity file at the individual loan level for all cash activity that includes late charges, payments, interest, reversals, disbursements, capitalized interest adjustments, servicer adjustments, adjustments to prior periods and any other monetary activity that affects the balance of the loan. Report should include subtotal by pool, by date, totals by category, borrower name /SSN, activity description and dollar amounts.	box.com or equivalent	Monthly
4	Balance File	A daily balance loan level file that includes the outstanding principal / refund, interest, and fee(s) balance at the end of each day.	box.com or equivalent	Monthly
5	Servicer Characteristics Report	Maturity analysis report that shows the number of loans, number of Borrowers, weighted interest rate and total unpaid principal by pool and within pool by categories of: - Interim Period - Deferment Period - Forbearance Period - Grace Period - Repayment Period Current - Repayment Period 1>30 days delinquent - Repayment Period 31 through 60 days delinquent - Repayment Period 61 through 90 days delinquent - Repayment Period 91 through 120 days delinquent - Repayment Period 121 through 150 days delinquent - Repayment Period 151 through 180 days delinquent Also includes comparison of anticipated terms of simple average vs weighted average per the categories listed above.	box. com or equivalent	Monthly

C-1

Item	Report Name	Report Description	Dissemination Method	Frequency
6	Cash/Non-Cash Reconciliation Report	Rolling summary of cash and non-cash transactions for the period. Should include outstanding principal, accrued interest and late charges related to cash and non-cash activity in categories such as new activity, cash collections, Client advices and Servicer generated adjustments. Report will be in mutually agreed format.	box.com or equivalent	Monthly (or upon request)
7	Non-cash Detail Report	Reports at loan level all non-cash activity for the month such as refunds (payment advices for partial, full and school refunds), claim payments and reversals. Report should include subtotal by pool, by date, totals by category, contains borrower name/SSN, effective date, transition type and dollar amounts by PBO added/(removed) and interest/late charges added (removed.)	box. com or equivalent	Monthly
8	Claims Processing Report	Reports on every loan that is charged-off from the Servicer database. Reports are submitted to Client on an individual borrower basis. One report includes claim borrower Account history (BHAR) outlining all activity related to the borrower/loan.	box.com or equivalent	Monthly
9	Billing Invoices	Invoice summary showing number of items, costs billed with dollar totals due to servicer. Should be able to support invoice numbers with details of activity if requested.	box.com or equivalent	Monthly

In addition to the delivery of the Servicing Reports at the times indicated in the above table, the Servicer also shall deliver, upon the request of the Client, any or all of the Servicing Reports at any time and from time to time during the period from the Effective Date through the thirtieth day following the deconversion of Student Loans from XES as provided in Section 2.11 of this Agreement.

C-2

SCHEDULE D

DECONVERSION SERVICES

Upon the occurrence of any event triggering Deconversion Services under the terms of this Agreement, the Servicer shall provide reasonable cooperation and assistance in transferring, to the entity designated by the Client, those records and documents maintained by the Servicer in connection with the provision of Services with respect to the Serviced Loans being deconverted (or reports with respect thereto); provided that the Servicer shall not be obligated to forward any record or document in which it asserts proprietary rights or which relates to loans other than the Serviced Loans being deconverted. All records and documents shall be transferred in such medium as may be required under any applicable Program Requirements and not inconsistent with the Servicer’s private student loan servicing guidelines and all reports shall be in such detail as may be required under any applicable Program Requirements and not inconsistent with the Servicer’s private student loan servicing guidelines.

The Servicer shall use commercially reasonable efforts to provide records that are transferable in an electronic form maintained by the Servicer within 90 days after the triggering date and to provide paper records within a reasonable time (not to exceed 180 days) after the triggering date.

D-1

SCHEDULE E

PROGRAM GUIDELINES

Unless otherwise indicated in this Schedule E or in the definition of Program Requirements, the Servicer shall comply with all the terms in this Schedule E and will be responsible for implementing and effecting all the provisions of this Schedule E.

Program Borrowing Limits¹

The minimum and maximum amounts that may be borrowed under this Loan Program, on a per borrower basis, are as follows:

Minimum Loan Amount:	$1,000 (or any other higher minimum loan amount as applicable by state law)
Annual Maximum Loan Limit:	Cost of Education less other financial aid
Aggregate Private Student Loan Program Limits:
	Associate degree programs:	$35,000
	Bachelors degree programs:	$60,000
	*Resulting in maximum undergraduate (Associate and Bachelors combined):	$60,000
	Graduate degree programs:	$25,000
	*Resulting in maximum total of all combined:	$85,000

Repayment Terms

During the Repayment Period, the minimum monthly principal and interest payment amount will be $50.00 per Account per month or the unpaid balance, whichever is less.

1) Deferral Period

While a student is enrolled at an ITT Technical Institute, repayment of principal and interest will be deferred until the circumstances described in the “Repayment Begins” section below occur. During the deferral period, the borrower will be sent quarterly statements providing him or her the opportunity to make interest payments. During the deferral period, the borrower can also make principal payments at any time without penalty.

2) Repayment Begins

Repayment of principal and interest on each loan will begin six (6) months after the student graduates, unless the student enrolls in another program at ITT Technical Institute and begins taking courses. For students who do not maintain at least four (4) credit hours in a given quarter for any reason other than graduation, repayment of principal and interest will begin three (3) months after their last day of attendance unless the student re-enrolls in an ITT Technical Institute and begins to take at least four (4) credit hours.

¹  Servicer not responsible for implementing and effecting Program Borrowing Limits.

E-1

Repayment of principal and interest on each loan will begin, if not already begun pursuant to the terms of the preceding paragraph, on the first day following the seventh (7^th) year anniversary of the date of the first disbursement on the loan.

3) Repayment Duration

The term of each loan will be ten (10) years from the date the repayment period begins, exclusive of any deferment or forbearance periods.

4) Prepayment

The borrower may prepay all or a portion of the loan at any time without penalty.

5) Late Charges

Borrowers will be assessed a late charge if they fail to make any part of an installment payment within 15 after it becomes due. The late charge fee will be the lesser of $10.00 or 5% of the installment.

Program Eligibility, Credit Requirements, and Loan Terms²

1) Eligible Borrower

The borrower must satisfy all of (a)-(d) below:

a) Be admitted to, or have graduated from, an ITT Technical Institute undergraduate or graduate program of study.

b) Be a U.S. Citizen or National, or a Permanent Resident.

AND

If there is a Co-signer, the Co-signer must be a U.S. Citizen or National, or a Permanent Resident.

c) Meet all credit requirements specified below in Section 3.

OR

Have a credit-worthy co-signer who meets all credit requirements specified below in Section 3.

d) Be the age of majority, as determined by individual state requirements for the primary borrower’s permanent residence, at the time of the loan application.

2) Eligible Loan Periods

Current and Future Borrowers can apply for a loan relating to an academic year that begins within twelve (12) months after the loan application date. The first disbursement for a subsequent academic year must also occur within twelve (12) months after the loan application date.

Past Enrollment Borrowers may borrow funds for previous academic periods during which they were enrolled as long as such borrower has either graduated or is enrolled in an ITT Technical Institute on the loan application date.

²  Servicer not responsible for implementing and effecting Requirements listed under Eligible Borrower, Eligible Loan Periods, and Credit Requirements.

E-2

3) Credit Requirements

To qualify for a loan, an eligible borrower must satisfy all of the following credit requirements:

a) No filed bankruptcy, discharged bankruptcy or foreclosure within the twenty-four (24) months immediately preceding the loan application date.

b) No judgments, charge offs, collections, liens, or repossessions in an aggregate amount of more than five hundred dollars ($500) within the twenty-four (24) months immediately preceding the loan application date.

c) No mortgage, student loans, or other installment loans that are currently 90 days or more past due.

d) No record of a student loan default, unless the default has been paid in full.

e) Less than three (3) derogatory credit indications on the borrower’s credit report. A derogatory credit indication is defined as a balance of at least five hundred dollars ($500) that is past due at least ninety (90) days.

f) A borrower who fails to quality on his or her own for a loan may be eligible with an eligible co-signer who satisfies all of the credit requirements and who has a credit score of at least 680.

At such time, if any, that the origination vendor of the loans can support it in an automated format, the foregoing (a) and (d) credit requirements will be modified to read instead as follows:

a) No filed bankruptcy, discharged bankruptcy or foreclosure within the twenty-four (24) months immediately preceding the loan application date unless the borrower has agreed to payment arrangements and made prompt payments for at least the last consecutive 18 months.

d) No record of a student loan default, unless the default has been paid in full, or the borrower is making satisfactory progress in repaying the loan. Satisfactory progress is defined as: at least twelve (12) consecutive payments made; Account is current; repayment history has no gaps; and the IRS Tax Offset Program was not used to pay default.

Notwithstanding the foregoing, a borrower who is otherwise eligible under all of the other provisions of these loan criteria does not need to satisfy all of the foregoing (a) through (f) credit requirements to quality for a loan if such borrower: (i) received the open account credit provided by ITT Technical Institute (known as its “Temporary Credit” program); (ii) has graduated or is enrolled in any academic quarter other than the first academic quarter of such borrower’s first academic year on the loan application date; and (iii) has not declared bankruptcy within the twenty-four (24) months immediately preceding the loan application date.

4) Interest Rate and Origination Fee

The eligible borrower’s FICO Score will determine the interest rate and fee charged on the loan as follows:

Tier	FICO Score	Interest Rate Range	Origination Fee*
1	790+	Prime +0.5% to 2.5%	N/A
2	720-789	Prime +1.5% to 3.5%	2%
3	680-719	Prime +4.0% to 6.0%	3%
4	650-679	Prime +6.0% to 8.0%	5%
5	600-649	Prime +7.0% to 9.0%	7%
6	No credit score	Prime +8.0% to 10.5%	8%
7	599 and below	Prime +10.5% to 13.0%	10%

* Origination fee calculated as a percent of loan amount

Eligible borrowers with an Experian-Fair Isaac Score Code of 9002 or 9003 will be priced as if part of Tier 6 (“No Credit Score”).

E-3

The origination fee will be credited in full to the borrower if an entire disbursement is refunded within 60 days of the disbursement date.

Notwithstanding the rates and fees set forth in the table above, the annual percentage rate, including the capitalized origination fee, on any loan will not exceed eighteen percent (18%) over the term of the loan, or such other limit under applicable law that may be in effect from time to time.

5) Deferment

a) In School

Principal and interest payments on a loan may be deferred by the borrower during the period that the student is enrolled in an undergraduate or graduate program at an ITT Technical Institute and is taking at least four (4) credit hours. Upon graduation, the student may defer payment of the loan principal and interest for an additional six (6) months (“grace period”). If the student enrolls in another program at an ITT Technical Institute and begins taking courses before or after the end of such six (6) months, the deferral will continue or begin again, as applicable, until such time as repayment is to begin under the terms of these loan criteria. Students whose enrollment terminates prior to graduation, or who are taking less than four (4) credit hours, will have a three (3) month grace period before principal and interest payments begin. If the student re-enrolls in an ITT Technical Institute and begins to take at least four (4) credit hours before or after the end of such three (3) month period, the deferral will continue or begin again, as applicable, until such time as repayment is to begin under the terms of these loan criteria. Borrowers will receive quarterly statements while enrolled.

b) Military

A military deferment will be available for a period during which a borrower is serving on active duty during a war or other military operation or national emergency, or performing qualifying National Guard duty during a war or other military operation or national emergency (“Qualifying Duty”). A borrower who is a member of the National Guard or other reserve component of the U.S. Armed Forces (current or retired) and who begins serving Qualifying Duty while enrolled at ITT Technical Institute, or within six (6) months after having been enrolled, is eligible to defer paying any principal or interest on a loan during the Qualifying Duty service and during the 13 months following the conclusion of the Qualifying Duty service, or until the date that the borrower returns to an enrolled student status at ITT Technical Institute, whichever is earlier.

6) Forbearance

A borrower may request a forbearance of the payment of principal and interest on a loan, which Student CU Connect CUSO will grant in its sole discretion. Any single forbearance in the payment of a loan may not exceed three (3) months, and all forbearances granted with respect to a loan may not, in aggregate, exceed twelve (12) months over the life of the loan. If the borrower is delinquent at the time a forbearance is granted, all past due interest on the loan will be capitalized.

7) Interest Rate

Interest will accrue at a variable rate (based on the borrower’s FICO score, see “‘Interest Rate and Origination Fee” above), beginning on the date that any portion of the loan is disbursed, on the outstanding principal balance, including any capitalized interest and origination fees. The variable rate may change monthly on the first day of each month based on the Prime Rate as of the third to last business day of the immediately preceding month. The Prime Rate is defined as the highest U.S. Prime Rate published in The Wall Street Journal “Money Rates” section. The Servicer shall calculate the rate change each month.

The applicable interest rate will be rounded to the nearest one-eighth of one percent (0.125%). In the event of a change in the Prime Rate, monthly payments will be calculated based on the then current principal balance, the remaining term of the loan, and the then current interest rate, based on a 365.25-day calendar year and will not vary in leap years.

E-4

Notwithstanding any other provisions herein, at no time will the applicable interest rate, inclusive of the capitalized origination fee, be such that the annual percentage rate on any loan exceeds eighteen percent (18%), or such other limit under applicable law as in effect from time to time.

8) Co-Signer Eligibility

To be eligible to co-sign a loan, a co-signer must have a FICO score of at least 680 and satisfy other criteria specified above in Sections 1 (other than 1(a)) and 3. Loans with an eligible co-signer will be charged interest and fees at the Tier 4 level in Section 4 above.

9) Default & Charge-Off

A loan will be in reportable default if any principal or interest payment under the loan is sixty (60) days past due.

A loan will be charged off if payments under the loan are due and not received for a period of one hundred and eighty (180) days.

E-5

SCHEDULE F

TERMINATION CRITERIA

This Agreement may be terminated pursuant to Section 5.02(D) as follows:

If the Actual Cumulative Default Ratio on the portfolio exceeds 35%, as measured at each month-end, the Servicer must submit to the Client and ITT an action plan setting forth in reasonable detail the steps that the Servicer intends to take to improve the repayment performance of all the Serviced Loans for the Client. If the Actual Cumulative Default Ratio on the portfolio remains above 35% for a period of ninety (90) days, as measured at each month-end, the notice of termination may be provided.

Definitions:

Actual Cumulative Default Ratio = Cumulative Defaults / All Serviced Loans (excluding (1) Serviced Loans that are in Interim Period, Deferment Period, Forbearance Period, or Grace Period and (2) Serviced Loans that are Defaulted Loans) + all Defaulted Loans

Cumulative Defaults = Total Principal Balance of Loans that become a Defaulted Loan beginning three months after the Servicer begins servicing the portfolio

F-1

SCHEDULE G

SERVICER HOLIDAYS

2012

New Year’s Day

Martin Luther King, Jr. Day

Presidents’ Day

Memorial Day

Fourth of July

Labor Day

Thanksgiving Day

Day after Thanksgiving

Christmas Day

G-1

SCHEDULE H

DECONVERSION AND TRANSFER SCHEDULE FROM XES’ SERVICING SYSTEM

Item	Description	Delivery Date
Ad hoc files	Delivery of “ad hoc files” for all borrowers maintained on XES’ system as of June 8, 2012 for all Accounts other than those relating to the Additional Disbursement Loans, and as of June 30, 2012 for all Accounts relating to the Additional Disbursement Loans.	June 9, 2012 for all loans/disbursements, including those partially disbursed; July 1, 2012 for all disbursements made after the June 8, 2012 initial deconversion
Borrower History and Transaction Activity	All Borrower History and Transaction Activity maintained on the XES system as of June 8, 2012 for all Accounts other than those relating to the Additional Disbursement Loans, and as of June 30, 2012 for all Accounts relating to the Additional Disbursement Loans. Such information to be delivered in a RPT-formatted file.	Within 2 business days following deconversion (June 12, 2012) for all Accounts other than those relating to the Additional Disbursement Loans; July 1, 2012 for all Accounts relating to the Additional Disbursement Loans
IntID Query	Provide a query file that matches IntID, SSN and name at the borrower level. (A sample name from a past file is: Qty_AW_ITT_PrevBorrFlg_Appvd_20111011024402.) Two files will be delivered, one providing such information for all loans/borrowers since program inception through current, the other providing such data for loans disbursed between April 1, 2012 and Effective Date.	XES will provide a Life to Date query file that matches IntID, SSN and name at the borrower level. This query will cover the time from origination up to the deconversion date of June 8, 2012 with a delivery date of June 9, 2012. A supplemental query will be run as of June 30, 2012, which will capture the time period from June 8th through June 30th with a delivery date of July 2, 2012.
Asset documents	For any borrowers for which Client determines it does not have all asset documents (promissory notes, electronic signature logs, disclosures, etc), XES to provide such.	Within 15 business days of XES receipt of list from Client for all Accounts other than those relating to the Additional Disbursement Loans, and within 15 business days of XES receipt of list from Client for all Accounts relating to the Additional Disbursement Loans
All Standard XES Servicing Reports	Copies of the daily XES Servicing Reports (specifically those entitled CF051R1 Cash/non-cash Reconciliation Report and CF011 Monthly 035/045 Transaction Detail) as of June 8, 2012 for all Accounts other than those relating to the Additional Disbursement Loans, and as of June 30, 2012 for all Accounts relating to the Additional Disbursement Loans.	June 9, 2012 for all Accounts other than those relating to the Additional Disbursement Loans; July 1, 2012 for all Accounts relating to the Additional Disbursement Loans

H-1

Item	Description	Delivery Date
Accounts with active ACH	If not provided explicitly in one of the files noted above, a CSV- or XML-formatted file listing all borrowers with active auto-ACH instructions in the file format provided to the Client on April 25, 2012.	June 10, 2012 for all Accounts other than those relating to the Additional Disbursement Loans; July 1, 2012 for all Accounts relating to the Additional Disbursement Loans
Return mail	All mail returned to XES as undeliverable for subject borrowers. Return mail would include such mail not yet processed as of June 8, 2012 for all Accounts other than those relating to the Additional Disbursement Loans, and as of June 30, 2012 for all Accounts relating to the Additional Disbursement Loans, and subsequent return mail received. XES will redact any information on such mail pertaining to a loan other than the Client’s loans (e.g., borrower with an FFEL loan being serviced by XES on a combined statement).	Each business day subsequent to the deconversion for which return mail is received Up through 30 days following last deconversion
Daily activity log	Log of all borrower activity (e.g., payments, inquiries, etc) to be delivered in the format previously provided to the Client.	Each business day subsequent to the deconversion for which activity is transacted for borrowers up through 60 days from last deconversion
Joint hello/goodbye letter	In association with successor servicer, review and approve delivery of a “hello/goodbye” letter to be delivered by successor servicer to all borrowers. Letter will include logos for both companies, and will serve to inform borrowers of the change in servicer of their accounts. XES and successor servicer will jointly approve verbiage in such letter, with successor servicer responsible for letter delivery.	Review/approval prior to deconversion
Domains and dedicated phone numbers	Deconversion (including access IDs, passwords, etc) of all domains, email addresses and phone numbers dedicated exclusively to the Client loan program.	July 2, 2012

H-2

EX-21

Exhibit 21

Subsidiaries

The following table sets forth, as of December 31, 2013, the information on our subsidiaries that is required to be reported under Item 601 of the SEC’s Regulation S-K.

Name	State of Incorporation or Organization	Name Under Which Business is Conducted
ESI Service Corp.	Delaware	ESI Service Corp.
ESI Maryland Corp.	Maryland	ITT Technical Institute
Daniel Webster College, Inc.	Indiana	Daniel Webster College
Cable Holdings, LLC	Minnesota	Benchmark Learning

EX-23

Exhibit 23

Consent of Independent Registered Public Accounting Firm

We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (No.’s 333-38883, 333-55903, 333-56493, 333-73280, 333-84871, 333-133915 and 333-188435) of ITT Educational Services, Inc. of our report dated October 15, 2014 relating to the financial statements, financial statement schedule and the effectiveness of internal control over financial reporting, which appears in this Form 10-K.

/s/ PricewaterhouseCoopers LLP

PricewaterhouseCoopers LLP

Indianapolis, Indiana

October 15, 2014

EX-31.1

Exhibit 31.1

CERTIFICATION PURSUANT TO

RULE 13a–14(a)/15d–14(a) OF THE

SECURITIES EXCHANGE ACT OF 1934

I, Kevin M. Modany, certify that:

1. I have reviewed this annual report on Form 10-K of ITT Educational Services, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: October 15, 2014

/s/ Kevin M. Modany

Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION PURSUANT TO

RULE 13a–14(a)/15d–14(a) OF THE

SECURITIES EXCHANGE ACT OF 1934

I, Daniel M. Fitzpatrick, certify that:

1. I have reviewed this annual report on Form 10-K of ITT Educational Services, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: October 15, 2014

/s/ Daniel M. Fitzpatrick

Chief Financial Officer

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of ITT Educational Services, Inc. (the “Company”) on Form 10-K for the period ending December 31, 2013 as filed with the Securities and Exchange Commission (the “Report”), I, Kevin M. Modany, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Kevin M. Modany

Chief Executive Officer

October 15, 2014

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of ITT Educational Services, Inc. (the “Company”) on Form 10-K for the period ending December 31, 2013 as filed with the Securities and Exchange Commission (the “Report”), I, Daniel M. Fitzpatrick, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Daniel M. Fitzpatrick

Chief Financial Officer

October 15, 2014

XML

Debt (Tables)

12 Months Ended

Dec. 31, 2013

Debt Disclosure [Abstract]

Estimated Principal Payments on the PEAKS Senior Debt in the Period

The following table sets forth the estimated principal payments on the PEAKS Senior Debt in the periods indicated:

Fiscal Year	Amount
2014	$	161,219
2015	$	16,699
2016	$	7,618
2017	$	8,194
2018	$	8,909
2019 - 2020	$	51,393

XML

Financial Aid Programs - Additional Information (Detail)	12 Months Ended
	Dec. 31, 2013
Regulated Operations [Abstract]
Percentage of revenue determined on cash accounting basis	82.00%

XML

Revision of 2011 and 2012 Financial Statements - Effect of Revisions on Affected Line Items on Consolidated Statement of Comprehensive Income (Detail) (USD $) In Thousands, unless otherwise specified	3 Months Ended								12 Months Ended
	Dec. 31, 2013	Sep. 30, 2013	Jun. 30, 2013	Mar. 31, 2013	Dec. 31, 2012	Sep. 30, 2012	Jun. 30, 2012	Mar. 31, 2012	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011
Statement of Comprehensive Income Data:
Net income	$ (39,381)	$ 9,424	$ 20,204	$ (17,271)	$ (10,074)	$ 42,458	$ 45,941	$ 60,645	$ (27,024)	$ 138,970	$ 309,086
Comprehensive income									(15,948)	140,519	304,116
As Previously Reported [Member]
Statement of Comprehensive Income Data:
Net income										140,465	307,752
Comprehensive income										142,014	302,782
Revisions [Member]
Statement of Comprehensive Income Data:
Net income										(1,495)	1,334
Comprehensive income										$ (1,495)	$ 1,334

XML

Variable Interest Entities - Guarantee and Other Payments Related to PEAKS Program (Detail) (USD $) In Thousands, unless otherwise specified	2 Months Ended	10 Months Ended	12 Months Ended
	Feb. 28, 2013	Dec. 31, 2013	Dec. 31, 2013	Dec. 31, 2012
Variable Interest Entity [Line Items]
Payments on Behalf of Borrowers			$ 11,499	$ 2,762
PEAKS Program [Member]
Variable Interest Entity [Line Items]
PEAKS Guarantee	854	1,559	2,413	12,342
Payments on Behalf of Borrowers	532	10,967	11,499	2,762
Total	$ 1,386	$ 12,526	$ 13,912	$ 15,104

XML

Equity Compensation Plans - Additional Information (Detail) (USD $)	12 Months Ended			0 Months Ended	12 Months Ended		12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011	May 07, 2013 Amended and Restated 2006 Equity Compensation Plan [Member]	Dec. 31, 2013 2006 Equity Compensation Plan [Member]	May 07, 2013 2006 Equity Compensation Plan [Member]	Dec. 31, 2013 2006 Equity Compensation Plan [Member] Awards Prior To November 24, 2010 [Member] Y	Dec. 31, 2013 2006 Equity Compensation Plan [Member] Awards After November 24, 2010 [Member] Y	Dec. 31, 2013 1999 Directors Stock Plan [Member]	Dec. 31, 2013 1999 Directors Stock Plan [Member] Maximum [Member] Stock Options Granted Prior To January 25, 2005 [Member]	Dec. 31, 2013 1999 Directors Stock Plan [Member] Maximum [Member] Stock Options Granted On Or After January 25, 2005 [Member]	Dec. 31, 2013 1997 Stock Plan [Member]	Dec. 31, 2013 1997 Stock Plan [Member] Maximum [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Maximum number of shares of common stock authorized for grant				7,350,000		4,000,000			500,000			8,100,000
Increase in number of shares of common stock authorized for grant				3,350,000
Maximum percentage of shares on cumulative basis used for restricted stock awards												20.00%
Maximum percentage available for issuance of incentive stock option plan												1.50%
Capitalization of stock-based compensation cost	$ 0	$ 0	$ 0
Pre-tax compensation expense for unvested stock-based compensation grants	13,900,000
Service period applicable to the grantees on a weighted-average basis, years	2 years
Maximum term of Stock Options granted under stock option plan					7 years					10 years	7 years		10 years 2 days
Award vesting period									Under the 1999 Directors Stock Plan, the stock options granted typically vested and became exercisable on the first anniversary of the grant.			Vested and became exercisable in three equal annual installments commencing with the first anniversary of the date of grant.
Share based compensation by share based payment, restriction period							3	1
Number of RSUs vested in the period that were settled in cash		48,935
RSUs vested and settled in shares of common stock, amount	1,241,000	4,568,000	2,454,000
RSUs vested and settled in cash, amount		$ 3,073,000

XML

Debt - Additional Information (Detail) (USD $) In Thousands, unless otherwise specified	12 Months Ended											0 Months Ended	12 Months Ended		12 Months Ended						12 Months Ended		1 Months Ended	12 Months Ended		0 Months Ended	3 Months Ended		12 Months Ended
	Dec. 31, 2013 Land	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2013 For the period from September 15, 2014 through and including March 21, 2015 [Member]	Dec. 31, 2013 For the period from March 22, 2015 through and including March 21, 2016 [Member]	Dec. 31, 2013 For the period from March 22, 2016 through and including March 21, 2017 [Member]	Dec. 31, 2013 For the period from March 22, 2017 through and including March 21, 2018 [Member]	Dec. 31, 2013 For the period from March 22, 2018 through and including March 21, 2019 [Member]	Dec. 31, 2013 For the period from March 22, 2019 through November 15, 2019 [Member]	Dec. 31, 2013 Minimum [Member]	Dec. 31, 2013 Maximum [Member]	Feb. 28, 2013 PEAKS Senior Debt [Member]	Dec. 31, 2013 PEAKS Senior Debt [Member]	Jan. 31, 2010 PEAKS Senior Debt [Member]	Dec. 31, 2013 Credit Agreement [Member]	Dec. 31, 2012 Credit Agreement [Member]	Dec. 31, 2011 Credit Agreement [Member]	Mar. 21, 2012 Credit Agreement [Member]	Dec. 31, 2013 Amended Credit Agreement [Member]	Dec. 31, 2013 Amended Credit Agreement [Member] Minimum [Member]	Dec. 31, 2013 Amended Credit Agreement [Member] Maximum [Member]	Dec. 31, 2013 2014 Payment [Member] Letter Agreement [Member]	Apr. 30, 2013 PEAKS Guarantee [Member]	Dec. 31, 2012 PEAKS Guarantee [Member]	Dec. 31, 2013 PEAKS Guarantee [Member] 2014 Payment [Member]	Oct. 09, 2014 Subsequent Event [Member] PEAKS Guarantee [Member]	Sep. 30, 2014 Subsequent Event [Member] PEAKS Guarantee [Member]	Dec. 31, 2013 J P Morgan Chase Bank [Member]	Dec. 31, 2013 First Amendment [Member] Credit Agreement [Member]	Dec. 31, 2013 Second Amendment [Member] Credit Agreement [Member]	Dec. 31, 2013 Third Amendment [Member] Credit Agreement [Member]	Dec. 31, 2013 Fourth Amendment [Member]	Dec. 31, 2013 Fourth Amendment [Member] Minimum [Member]	Dec. 31, 2013 Fourth Amendment [Member] Credit Agreement [Member]	Dec. 31, 2013 Fifth Amendment [Member] Credit Agreement [Member]
Line of Credit Facility [Line Items]
Aggregate principal amount																		$ 325,000																$ 25,000
Credit agreement amended date																													Mar. 31, 2014	May 29, 2014	Jun. 30, 2014			Jul. 30, 2014	Mar. 21, 2015
Revised maximum borrowing capacity																			135,000
Letter of credit agreement borrowing capacity																				25,000	85,000							2,352
Decrease in letter of credit agreement borrowing capacity	100,000
Effective interest rate on borrowings															3.60%	2.40%	1.20%
Commitment fee under the New Credit Agreement															0.40%
Interest expense	3,424	3,303	1,825										21,288
Ticking fee rate				0.00%	1.00%	2.00%	3.00%	4.00%	5.00%
Number of parcels, land	30
Number of days delay imposed by ED	5 days
Cash collateral, percentage	103.00%
Percentage of cash collateral amount equal to face amount	109.00%
Line of credit, amount																																75,000
Decrease in line of credit																																5,000
Percentage of net cash proceeds from Mortgaged Property																																	75.00%
Net cash proceeds received																					125,000
Aggregate principal amount																																		5,000
Borrowings under credit agreement															50,000
Senior debt in the aggregate principal amount													300,000	300,000
Debt instrument maturity date													Jan. 31, 2020
Variable rate percentage													5.50%
Minimum LIBOR rate applied													2.00%
Required Asset/Liability ratio										1.05	1.40												0.0140
Payments under PEAK Guarantee																						40,000	60,340	12,342	159,500	50,000	51,700
Outstanding balance												257,533	255,600
Debt instrument carrying amount													229,224
Current portion of PEAKS Trust senior debt	157,883	0											157,883
Estimated fair value of senior debt												226,096
Difference in Estimated Fair Value and Outstanding Principal Amount												31,437
Effective Interest Rate													9.90%
Amortization of discount													$ 4,926

XML

Schedule II - Valuation and Qualifying Accounts (Detail) (Allowance for Doubtful Accounts [Member], USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011
Allowance for Doubtful Accounts [Member]
Valuation and Qualifying Accounts Disclosure [Line Items]
Balance at Beginning of Period	$ 15,663	$ 9,175	$ 7,526
Charged to Expenses	67,640	56,818	35,655
Write-offs	(74,129)	(50,330)	(34,006)
Balance at End of Period	$ 9,174	$ 15,663	$ 9,175

XML

Revision of 2011 and 2012 Financial Statements - Effect of Revisions on Affected Line Items on Consolidated Balance Sheet (Detail) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2013	Feb. 28, 2013	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Balance Sheet Data:
Cash and cash equivalents	$ 215,771		$ 243,465	$ 223,849	$ 157,704
Restricted cash	5,636		3,478
Accounts receivable, net	99,530		78,928
Deferred income taxes (current)	77,549		44,547
Total current assets	434,616		386,580
Deferred income taxes	68,324		57,471
Total assets	806,851	6,614	675,204
Other current liabilities	42,136	3,060	106,796
Total current liabilities	473,777		327,023
Other liabilities	146,087	43,054	82,416
Total	691,205	46,114	549,439
Capital surplus	200,040		197,113
Retained earnings	940,449		967,473
Total shareholders' equity	115,646		125,765	169,105	127,042
Total liabilities and shareholders' equity	806,851		675,204
As Previously Reported [Member]
Balance Sheet Data:
Cash and cash equivalents			246,342
Restricted cash			601
Accounts receivable, net			77,313
Deferred income taxes (current)			44,547
Total current assets			384,965
Deferred income taxes			56,112
Total assets			672,230
Other current liabilities			86,722
Total current liabilities			306,949
Other liabilities			98,327
Total			545,276
Capital surplus			206,703
Retained earnings			959,072
Total shareholders' equity			126,954
Total liabilities and shareholders' equity			672,230
Revisions [Member]
Balance Sheet Data:
Cash and cash equivalents			(2,877)
Restricted cash			2,877
Accounts receivable, net			1,615
Deferred income taxes (current)			0
Total current assets			1,615
Deferred income taxes			1,359
Total assets			2,974
Other current liabilities			20,074
Total current liabilities			20,074
Other liabilities			(15,911)
Total			4,163
Capital surplus			(9,590)
Retained earnings			8,401
Total shareholders' equity			(1,189)
Total liabilities and shareholders' equity			$ 2,974

XML

Equity Compensation Plans (Tables)

12 Months Ended

Dec. 31, 2013

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Stock-Based Compensation Expense and Related Income Tax Benefit

The stock-based compensation expense and related income tax benefit recognized in our Consolidated Statements of Income in the periods indicated were as follows:

	Year Ended December 31,
	2013			2012			2011
Stock-based compensation expense	$	11,638		$	16,658		$	17,074
Income tax (benefit)	($	4,481	)	($	6,414	)	($	6,574	)

Stock Options Granted, Forfeited, Exercised and Expired

The stock options granted, forfeited, exercised and expired in the period indicated were as follows:

	Year Ended December 31, 2013
				Weighted					Weighted
				Average		Aggregate			Average	Aggregate
	# of			Exercise		Exercise			Remaining	Intrinsic
	Shares			Price		Price			Contractual Term	Value (1)
Outstanding at beginning of period		1,574,604		$	84.90	$	133,691
Granted		156,500		$	19.55		3,059
Forfeited		(16,668	)	$	75.11		(1,252	)
Exercised		0		$	0.00		0
Expired		(381,988	)	$	69.48		(26,543	)
Outstanding at end of period		1,332,448		$	81.77	$	108,955		2.4 years	$	2,198
Exercisable at end of period		1,040,443		$	92.28	$	96,016		2.1 years	$	0

(1) The aggregate intrinsic value of the stock options was calculated by identifying those stock options that had a lower exercise price than the closing market price of our common stock on December 31, 2013 and multiplying the difference between the closing market price of our common stock and the exercise price of each of those stock options by the number of shares subject to those stock options that were outstanding or exercisable, as applicable.

Stock Options Granted and Exercised

The following table sets forth information regarding the stock options granted and exercised in the periods indicated:

	Year Ended December 31,
	2013		2012		2011
Shares subject to stock options granted		156,500		156,500		159,500
Weighted average grant date fair value	$	9.27	$	31.36	$	28.90
Shares subject to stock options exercised		0		202,820		118,410
Intrinsic value of stock options exercised	$	0	$	4,802	$	3,095
Proceeds received from stock options exercised	$	0	$	8,345	$	5,599
Tax benefits realized from stock options exercised	$	0	$	1,602	$	1,190

Assumptions used to Estimate Grant Date Fair Value of Stock Options

The fair value of each stock option grant was estimated on the date of grant using the following assumptions:

	Year Ended December 31,
	2013			2012			2011
Risk-free interest rates		0.7	%		0.7	%		1.8	%
Expected lives (in years)		4.6			4.5			4.7
Volatility		60	%		51	%		48	%
Dividend yield		None			None			None

Number of Restricted Stock Units (RSUs) Granted, Forfeited and Vested

The following table sets forth the number of RSUs that were granted, forfeited and vested in the period indicated:

	Year Ended December 31, 2013
	# of RSUs			Weighted Average Grant Date Fair Value
Unvested at beginning of period		413,645		$	75.35
Granted		522,014		$	19.98
Forfeited		(129,327	)	$	46.72
Vested		(68,488	)	$	88.60
Unvested at end of period		737,844		$	39.96

XML

Debt - Estimated Principal Payments on the PEAKS Senior Debt in the Period (Detail) (PEAKS Senior Debt [Member], USD $) In Thousands, unless otherwise specified	Dec. 31, 2013
PEAKS Senior Debt [Member]
Debt Instrument [Line Items]
2014	$ 161,219
2015	16,699
2016	7,618
2017	8,194
2018	8,909
2019 - 2020	$ 51,393

XML

PEAKS Trust Student Loans - Schedule of Estimated Fair Value, Accretable Yield and Expected Cash Flows for PEAKS Trust Student Loans (Detail) (PEAKS Trust Student Loans [Member], USD $) In Thousands, unless otherwise specified	Feb. 28, 2013
Acquired Impaired Loans Rollforward [Line Items]
Estimated fair value	$ 112,116
Accretable yield	100,953
Expected cash flows	213,069
Analogy [Member]
Acquired Impaired Loans Rollforward [Line Items]
Estimated fair value	60,177
Accretable yield	58,843
Expected cash flows	$ 119,020

XML

Employee Benefit Plans - Change in Fair Value of Plan Assets (Detail) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012
Compensation and Retirement Disclosure [Abstract]
Fair value of plan assets at beginning of year	$ 64,390	$ 58,839
Actual return on plan assets	16,565	8,032
Employer contributions	0	0
Benefits paid	(4,245)	(2,481)
Fair value of plan assets at end of year	$ 76,710	$ 64,390

XML

Equity Compensation Plans - Stock Options Granted, Forfeited, Exercised and Expired (Detail) (USD $) In Thousands, except Share data, unless otherwise specified	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011
Number of shares
Number of Shares, Outstanding at beginning of period	1,574,604
Number of Shares, Granted	156,500	156,500	159,500
Number of Shares, Forfeited	(16,668)
Number of Shares, Exercised	0	202,820	118,410
Number of Shares, Expired	(381,988)
Number of Shares, Outstanding at end of period	1,332,448	1,574,604
Number of Shares, Exercisable at end of period	1,040,443
Weighted Average Exercise Price
Weighted Average Exercise Price, Outstanding at beginning of period	$ 84.90
Weighted Average Exercise Price, Granted	$ 19.55
Weighted Average Exercise Price, Forfeited	$ 75.11
Weighted Average Exercise Price, Exercised	$ 0.00
Weighted Average Exercise Price, Expired	$ 69.48
Weighted Average Exercise Price, Outstanding at end of period	$ 81.77	$ 84.90
Weighted Average Exercise Price, Exercisable at end of period	$ 92.28
Aggregate Exercise Price
Aggregate Exercise Price, Outstanding at beginning of period	$ 133,691
Aggregate Exercise Price, Granted	3,059
Aggregate Exercise Price, Forfeited	(1,252)
Aggregate Exercise Price, Exercised	0
Aggregate Exercise Price, Expired	(26,543)
Aggregate Exercise Price, Outstanding at end of period	108,955	133,691
Aggregate Exercise Price, Exercisable at end of period	96,016
Weighted Average Remaining Contractual Term
Weighted Average Remaining Contractual Term, Outstanding at end of period, years	2 years 4 months 24 days
Weighted Average Remaining Contractual Term, Exercisable at end of period, years	2 years 1 month 6 days
Aggregate Intrinsic Value
Aggregate Intrinsic Value, Outstanding at end of period	2,198
Aggregate Intrinsic Value, Exercisable at end of period	$ 0

XML

Property and Equipment - Property and Equipment, Net (Detail) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2013	Dec. 31, 2012
Property, Plant and Equipment [Abstract]
Furniture and equipment	$ 162,128	$ 171,534
Buildings and building improvements	134,993	134,303
Land and land improvements	39,609	39,609
Leasehold improvements	20,953	21,447
Software	8,620	8,620
Construction in progress	156	1,177
Property and Equipment Gross	366,459	376,690
Less: Accumulated depreciation and amortization	(197,950)	(186,800)
Property and equipment, net	$ 168,509	$ 189,890

XML

Employee Benefit Plans - Additional Information (Detail) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011
Defined Benefit Plan Disclosure [Line Items]
Accumulated benefit obligation	$ 49,412	$ 57,246
Estimated net actuarial loss expected to be amortized from accumulated other comprehensive loss and recognized in net periodic pension benefit cost	0
Estimated prior service cost credit expected to be amortized from accumulated other comprehensive loss and recognized in net periodic pension benefit cost	1,555
Contributions to pension plans	0	0
Cost incurred for providing different benefit	3,454	4,597	5,308
ESI Pension Plan [Member]
Defined Benefit Plan Disclosure [Line Items]
Contributions to pension plans	0	0
ESI Excess Pension Plan [Member]
Defined Benefit Plan Disclosure [Line Items]
Contributions to pension plans	0	0
Scenario, Forecast [Member] | ESI Pension Plan [Member]
Defined Benefit Plan Disclosure [Line Items]
Contributions to pension plans	0
Scenario, Forecast [Member] | ESI Excess Pension Plan [Member]
Defined Benefit Plan Disclosure [Line Items]
Contributions to pension plans	$ 0
Equity securities [Member]
Defined Benefit Plan Disclosure [Line Items]
Plan assets target allocations, minimum	30.00%
Plan assets target allocations, maximum	70.00%
Fixed income securities [Member]
Defined Benefit Plan Disclosure [Line Items]
Plan assets target allocations, minimum	20.00%
Plan assets target allocations, maximum	60.00%
Cash and cash equivalents [Member]
Defined Benefit Plan Disclosure [Line Items]
Plan assets target allocations, minimum	0.00%
Plan assets target allocations, maximum	50.00%
401 (k) Plan [Member]
Defined Benefit Plan Disclosure [Line Items]
Employer contribution to ESI plan	On July 1, 2013, we changed the rate at which we made contributions to the ESI 401(k) Plan on behalf of our employees. Prior to July 1, 2013, we contributed 100% of the first 1% and 50% of the next 4% of an employee’s salary that the employee contributed to his or her ESI 401(k) Plan account. Beginning July 1, 2013, we contribute 50% of the first 6% of an employee’s salary that the employee contributes to his or her ESI 401(k) Plan account.
1% of Employee [Member] | Prior To July 1, 2013 [Member] | 401 (k) Plan [Member]
Defined Benefit Plan Disclosure [Line Items]
Contribution made for employees towards ESI	100.00%
4% of Employee [Member] | Prior To July 1, 2013 [Member] | 401 (k) Plan [Member]
Defined Benefit Plan Disclosure [Line Items]
Contribution made for employees towards ESI	50.00%
6% of Employee [Member] | Beginning From July 1, 2013 [Member] | 401 (k) Plan [Member]
Defined Benefit Plan Disclosure [Line Items]
Contribution made for employees towards ESI	50.00%

XML

Income Taxes - Additional Information (Detail) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012
Income Tax Disclosure [Abstract]
State income tax benefit	$ 298
Unrecognized tax benefits that, if recognized, would affected effective tax rate	10,575
Interest and penalties accrued related to unrecognized tax benefits	$ 6,371	$ 5,699

XML

Employee Benefit Plans - Defined Benefit Plans (Detail) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2013	Dec. 31, 2012
Compensation and Retirement Disclosure [Abstract]
Non-current assets	$ 27,584	$ 7,459
Non-current (liabilities)	(286)	(315)
Total	$ 27,298	$ 7,144

XML

Property and Equipment - Depreciation and Amortization Expense (Detail) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011
Property, Plant and Equipment [Abstract]
Depreciation and amortization expense	$ 27,252	$ 29,350	$ 27,886

XML

Variable Interest Entities - Schedule of Payments Made to Entity Related to Guarantee Obligations (Detail) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012
Variable Interest Entity [Line Items]
Recoveries from Charged-Off Loans	$ 103	$ 234
2009 RSA [Member]
Variable Interest Entity [Line Items]
Regular Payments	1,791	1,990
Discharge Payments	912	0
Recoveries from Charged-Off Loans	(103)	(234)
Net guarantee obligation payments	$ 2,600	$ 1,756

XML

Risks and Uncertainties

12 Months Ended

Dec. 31, 2013

Text Block [Abstract]

Risks and Uncertainties

17. Risks and Uncertainties

Many of the amounts of assets, liabilities, revenues and expenses reported in our consolidated financial statements are based on estimates and assumptions that affect the amounts reported. We are subject to risks and uncertainties that could affect amounts reported in our consolidated financial statements in future periods. Our future performance, results of operations, financial condition, cash flows, liquidity, capital resources, ability to meet our obligations and ability to comply with covenants, metrics and regulatory requirements are subject to significant risks and uncertainties that could cause actual results to be materially different from our estimated results, including, but not limited to, the following:

• The Consolidation of the PEAKS Trust and other factors, among other things:

• have resulted in violations by us of covenants under the Amended Credit Agreement. We have obtained waivers and amendments relating to those violations;

• have negatively impacted our compliance with:

• the ED’s financial responsibility measurements, primarily our institutions’ composite score; and

• our compliance with the financial requirements of certain state education and professional licensing authorities (“SAs”); and

• have negatively impacted the financial metrics to which we are subject under the PEAKS Program and 2009 RSA.

See Note 13 – Debt and Note 16 – Commitments and Contingencies for additional information.

• We believe that we will be required to consolidate the 2009 Entity into our consolidated financial statements in the foreseeable future, which could impact our compliance with:

• covenants under the Amended Credit Agreement;

• the ED’s financial responsibility measurements, primarily our institutions’ composite score;

• the financial requirements of certain SAs; and

• the financial metrics to which we are subject under the PEAKS Program and 2009 RSA.

See Note 10 – Variable Interest Entities for additional information.

• Our institutions’ failure to submit their audited consolidated financial statements and Compliance Audits to the ED by the due date resulted in sanctions imposed by the ED on our institutions that include, among other things, our institutions having to post a letter of credit, being placed on heightened cash monitoring (“HCM”) and being provisionally certified. We have arranged for the letter of credit and have implemented procedures to address HCM, which requirements are not expected to significantly impact the timing of receipt of student financial aid funds. See Note 13 – Debt for additional information.

• We are required to submit the ED Letter of Credit on or before November 4, 2014. The term of the letter of credit is for a period that ends on November 4, 2019. With respect to any letter of credit issued under the Amended Credit Agreement, we are required to provide cash collateral in an amount equal to 109% of the face amount of the ED Letter of Credit and 103% of the face amount of all other letters of credit. Based on the required amount of the ED Letter of Credit and other letters of credit outstanding as of the date of this filing, the amount of the cash collateral that we will have to provide is approximately $89,300. Such collateral may be provided from available funds. See Note 13 – Debt for additional information.

• We are subject to various claims and contingencies, including those related to litigation, government investigations, business transactions, guarantee arrangements and employee-related matters, among others. With regard to these matters, we cannot provide an estimate of the possible losses, or range of possible losses, in excess of the amounts, if any, accrued. See the subsections entitled “Litigation” and “Government Investigations” in Note 16 - Commitments and Contingencies, for a further discussion of certain litigation and government investigations to which we are subject.

• The significant guarantee obligations that we have under the PEAKS Guarantee and 2009 RSA. Based on various assumptions, including the historical and projected performance and collection of the PEAKS Trust Student Loans, we believe that we will make payments under the PEAKS Guarantee of approximately $163,966 in 2014 and approximately $9,165 in 2015. In addition, based upon various assumptions, including the historical and projected performance and collections of the private education loans under the 2009 Loan Program, we believe that we will make payments under the 2009 RSA of approximately $9,009 in 2014 and $14,251 in 2015. See Note 13 – Debt and Note 16 – Commitments and Contingencies for a further discussion of the RSAs, estimated payment amounts and contingent liabilities.

• As of December 31, 2013, the outstanding borrowings under the Amended Credit Agreement totaled $50,000 and were classified as a current liability, because we believe it is probable that we will not be in compliance with certain covenants under the Amended Credit Agreement during the 12 months following December 31, 2013. If we are not in compliance with one or more covenants and are unable to obtain a waiver of our noncompliance or an amendment to the Amended Credit Agreement that would allow us to be in compliance with those covenants or otherwise not be in default under the Amended Credit Agreement, the lenders would have various remedies, including:

• the lending commitments under the Amended Credit Agreement may be terminated;

• our ability to request the issuance of letters of credit and to obtain amendments, extensions or renewals of letters of credit already issued under the Amended Credit Agreement may be terminated; and

• all then outstanding borrowings and other amounts owed under the Amended Credit Agreement may be declared immediately due and payable.

In the event that we or our subsidiary guarantor do not pay in full, upon demand, all of our outstanding borrowings and other amounts owed under the Amended Credit Agreement or we, or our subsidiary guarantor, do not provide, upon demand, the cash collateral for our letter of credit obligations, the lenders would be entitled to recourse against the collateral security, including the Mortgaged Property, that we and our subsidiary guarantor have provided, in order to obtain payment of amounts we owe or are required to provide as cash collateral.

• We incurred a net loss in the year December 31, 2013 and we had negative working capital as of December 31, 2013, primarily due to the impact of the Consolidation and the loss that we recorded related to our guarantee obligations under the 2009 RSA.

Based on our current projections, we believe that cash generated from operations will be sufficient for us to satisfy our RSA payments, letters of credit cash collateralization, working capital, loan repayment and capital expenditure requirements over the 12-month period following the date that this Annual Report on Form 10-K was filed with the SEC. We also believe that any reduction in cash and cash equivalents that may result from their use to make payments under the RSAs, provide cash collateral for letters of credit, construct facilities or repay loans will not have a material adverse effect on our expansion plans, planned capital expenditures, ability to meet any applicable regulatory financial responsibility standards or ability to conduct normal operations over the 12-month period following the date that this Annual Report on Form 10-K was filed with the SEC. Accordingly, our consolidated financial statements contained in this Annual Report on Form 10-K were prepared on the basis that we will continue to operate as a going concern. However, there can be no assurance that the ultimate outcome of these events individually or in the aggregate will not have a material adverse effect on our financial condition, results of operations or cash flows.

XML

Acquisitions - Additional Information (Detail) (USD $) In Thousands, unless otherwise specified	12 Months Ended				0 Months Ended	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011	Jan. 31, 2014 Subsequent Event [Member]	Aug. 01, 2013 Cable Holdings [Member]	Dec. 31, 2013 Cable Holdings [Member]	Dec. 31, 2013 Ascolta [Member]
Business Acquisition [Line Items]
Cash paid for acquisition, net of cash acquired	$ 7,150	$ 0	$ 0		$ 7,150
Identifiable intangible assets weighted-average life						5 years	5 years
Business acquired Assets and Liabilities				$ 5,186

XML

Commitments and Contingencies (Tables)

12 Months Ended

Dec. 31, 2013

Commitments and Contingencies Disclosure [Abstract]

Components of Recorded Liability Related to Claims and Contingencies

The following table sets forth the components of our recorded liability related to our claims and contingencies and where the amounts were included on our Consolidated Balance Sheets as of the dates indicated:

	As of December 31,
	2013		2012
PEAKS Guarantee (1)	$	0	$	47,500
2009 RSA		116,923		28,232
2007 RSA(2)		0		46,000
Other		8,957		5,246
Total	$	125,880	$	126,978
Other current liabilities	$	25,893	$	85,655
Other liabilities		99,987		41,323
Total	$	125,880	$	126,978

(1) We consolidated the PEAKS Trust in our consolidated financial statements as of February 28, 2013. See Note 10 – Variable Interest Entities, for a further discussion of the Consolidation.

(2) As defined below

Activity with Respect to Claims and Contingencies

The following table sets forth the activity with respect to our recorded liability related to our claims and contingencies in the periods indicated:

	Year Ended December 31,
	2013			2012
Balance as of January 1	$	126,978		$	36,028
Increases (decreases) from:
Additional accruals:
PEAKS Guarantee (1)		0			55,935
2009 RSA (2)		90,964			23,340
2007 RSA		0			21,750
Other		4,038			117
Payments, net of recoveries of $103 and $234 (3)		(2,600	)		(1,756	)
Payments under PEAKS Guarantee, net of estimated recoveries of $1,408 and $6,668		(1,005	)		(5,674	)
Payments on Behalf of Borrowers		(11,499	)		(2,762	)
Settlement payment – 2007 RSA		(46,000	)		0
Elimination of intercompany transactions (4)		11,118			0
Elimination of PEAKS Guarantee accrual (5)		(46,114	)		0
Balance as of December 31	$	125,880		$	126,978

(1) Our guarantee obligations under the PEAKS Program remain in effect until the PEAKS Senior Debt and the PEAKS Trust’s fees and expenses are paid in full. At such time, we will be entitled to repayment by the PEAKS Trust of the amount of payments we made under the PEAKS Guarantee (which do not include Payments on Behalf of Borrowers) to the extent that funds remain in the PEAKS Trust after the PEAKS Senior Debt and all fees and expenses of the PEAKS Trust have been paid in full. The PEAKS Senior Debt matures in January 2020 and, therefore, we do not expect to begin receiving any repayment of amounts that we previously paid under the PEAKS Guarantee until February 2020. The accrual related to the PEAKS Guarantee as of December 31, 2012 was recorded net of estimated recoveries, taking into consideration the present value of the estimated recoveries.

(2) This amount represents a change in our accounting estimate for the amount of our guarantee obligations under the 2009 RSA. We revised our estimate for the 2009 RSA based on an enhanced default rate methodology and more recent performance data that we obtained in the three months ended December 31, 2013. The primary enhancements and performance data included: (i) an adjustment to the default estimates for student borrowers, as a result of recently obtained actual default data for similarly-situated student borrowers; (ii) an adjustment to the default rate expectations, due to declines in repayment performance; (iii) our ability to make Discharge Payments; and (iv) a lower expectation for collections on defaulted loans as a result of the performance to date of collections.

(3) Includes payments, net of recoveries, under the 2009 RSA.

(4) We consolidated the PEAKS Trust in our consolidated financial statements as of February 28, 2013 and, as a result, we have eliminated from our consolidated financial statements the amount of payments under the PEAKS Guarantee and Payments on Behalf of Borrowers that we made following the Consolidation. See Note 10 – Variable Interest Entities, for a further discussion of the Consolidation.

(5) As a result of the Consolidation, we have eliminated from our consolidated financial statements the contingent liability related to the PEAKS Guarantee that we had previously recorded.

Future Minimum Rental Payments

Future minimum rental payments required under our operating leases that have initial or remaining non-cancelable lease terms in excess of one year as of December 31, 2013 are as follows:

2014	$	44,714
2015		38,582
2016		27,939
2017		19,084
2018		13,282
2019 and thereafter		12,446
	$	156,047

Estimated Amounts of Regular, Discharge Payments Expected to Pay and Estimated Recoveries from Charged-off Loans

The following table sets forth the estimated amount of Regular Payments and Discharge Payments that we expect to pay and the estimated amount of recoveries from charged-off loans that we expect to be paid to us by the 2009 Entity in the periods indicated:

Year	Estimated Regular Payments		Estimated Discharge Payments		Estimated Total Payments		Estimated Recoveries
2014	$	9,009	$	0	$	9,009	$	(1,011	)
2015		14,251		0		14,251		(1,200	)
2016		16,060		0		16,060		(1,200	)
2017		16,333		0		16,333		(1,200	)
2018 and later		0		75,194		75,194		(300	)
	$	55,653	$	75,194	$	130,847	$	(4,911	)

Aggregate Amount of Guarantee Payments, Discharge Payments and Payments on Behalf of Borrowers

The following table sets forth the approximate aggregate amount of guarantee payments, Discharge Payments and Payments on Behalf of Borrowers that were made related to the PEAKS Program and 2009 RSA and the amount of recoveries from charged-off loans paid to us by the 2009 Entity, in the periods indicated:

	January 1, 2013 Through February 28, 2013(1)(2)		March 1, 2013 Through December 31, 2013(1)(2)		Total Year Ended December 31, 2013			Year Ended December 31, 2012
Type of Payment (Receipt)
Guarantee:
PEAKS Program	$	854	$	1,559	$	2,413		$	12,342
2009 RSA Regular Payments		0		0		1,791			1,990
2009 RSA Discharge Payments		0		0		912			0
Payments on Behalf of Borrowers		532		10,967		11,499			2,762
2009 RSA-Recoveries from Charged-Off Loans		0		0		(103	)		(234	)
Total	$	1,386	$	12,526	$	16,512		$	16,860

(1) We have provided separate columns showing the payment amounts prior to and after the Consolidation, because all transactions with the PEAKS Trust were eliminated from our consolidated financial statements after the Consolidation. Cash payments were, however, made by us throughout the periods indicated, including the periods after the Consolidation.

(2) The 2009 RSA payments are made to, and recoveries are received from, the 2009 Entity. The 2009 Entity was not consolidated in our consolidated financial statements and, therefore, separate disclosure of amounts paid or received before and after the February 28, 2013 date of Consolidation is not applicable.

XML

PEAKS Trust Student Loans - Schedule of Information Regarding Aggregate Changes in Accretable Yield (Detail) (PEAKS Trust Student Loans [Member], USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2013
Accounts, Notes, Loans and Financing Receivable [Line Items]
Beginning balance	$ 0
Additions resulting from the Consolidation	100,953
Accretion	(12,996)
Reclassification from nonaccretable difference and changes in expected cash flows	(17,377)
Ending balance	70,580
Analogy [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Beginning balance	0
Additions resulting from the Consolidation	58,843
Accretion	(7,243)
Reclassification from nonaccretable difference and changes in expected cash flows	(9,326)
Ending balance	$ 42,274

XML

Commitments and Contingencies - Components of Recorded Liability Related to Claims and Contingencies (Detail) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011
Schedule of Claims and Contingencies [Line Items]
Claims and contingencies	$ 125,880	$ 126,978	$ 36,028
Other current liabilities	25,893	85,655
Other liabilities	99,987	41,323
Total	125,880	126,978	36,028
PEAKS Program Guarantee [Member]
Schedule of Claims and Contingencies [Line Items]
Claims and contingencies	0	47,500
Total	0	47,500
2009 RSA [Member]
Schedule of Claims and Contingencies [Line Items]
Claims and contingencies	116,923	28,232
Total	116,923	28,232
2007 RSA [Member]
Schedule of Claims and Contingencies [Line Items]
Claims and contingencies	0	46,000
Total	0	46,000
Other claims and contingencies [Member]
Schedule of Claims and Contingencies [Line Items]
Claims and contingencies	8,957	5,246
Total	$ 8,957	$ 5,246

XML

PEAKS Trust Student Loans (Tables)

12 Months Ended

Dec. 31, 2013

Student Loans [Abstract]

Schedule of Estimated Fair Value, Accretable Yield and Expected Cash Flows for PEAKS Trust Student Loans

The following table sets forth the estimated fair value, accretable yield and expected cash flows for the PEAKS Trust Student Loans, in total and for those loans pursuant to which ASC 310-30 was applied by analogy, as of the date indicated:

	As of February 28, 2013
	Total		ASC 310-30 Applied By Analogy
Estimated fair value	$	112,116	$	60,177
Accretable yield	$	100,953	$	58,843
Expected cash flows	$	213,069	$	119,020

Schedule of Information Regarding Changes in Allowance for Loan Losses

The following table sets forth information regarding changes in the allowance for loan losses of the loan pools of the PEAKS Trust Student Loans in the aggregate in the period indicated:

	Year Ended December 31,
	2013
Balance as of February 28, 2013	$	0
Loans charged off		0
Recoveries from charged off loans		0
Provision for loan losses		29,349
Balance as of December 31, 2013	$	29,349

Schedule of Information Regarding Aggregate Changes in Accretable Yield

The following table sets forth information regarding aggregate changes in accretable yield of the loan pools of the PEAKS Trust Student Loans, in total and for those loans pursuant to which ASC 310-30 was applied by analogy, for the period indicated:

	Year Ended December 31, 2013
	Total			ASC 310-30 Applied By Analogy
Balance as of January 1	$	0		$	0
Additions resulting from the Consolidation		100,953			58,843
Accretion		(12,996	)		(7,243	)
Reclassification from nonaccretable difference and changes in expected cash flows		(17,377	)		(9,326	)
Balance as of December 31	$	70,580		$	42,274

XML

Fair Value and Credit Risk of Financial Instruments - Fair Value Measurement of Financial Assets (Detail) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2013	Dec. 31, 2012
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Financial assets fair value disclosure	$ 226,044	$ 163,283
Money Market Funds [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Cash equivalents	214,985	151,784
Restricted cash	2,433	2,877
Other assets	8,626	8,622
(Level 1) Quoted Prices in Active Markets for Identical Assets [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Financial assets fair value disclosure	226,044	163,283
(Level 1) Quoted Prices in Active Markets for Identical Assets [Member] | Money Market Funds [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Cash equivalents	214,985	151,784
Restricted cash	2,433	2,877
Other assets	8,626	8,622
(Level 2) Significant Other Observable Inputs [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Financial assets fair value disclosure	0	0
(Level 2) Significant Other Observable Inputs [Member] | Money Market Funds [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Cash equivalents	0	0
Restricted cash	0	0
Other assets	0	0
(Level 3) Significant Unobservable Inputs [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Financial assets fair value disclosure	0	0
(Level 3) Significant Unobservable Inputs [Member] | Money Market Funds [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Cash equivalents	0	0
Restricted cash	0	0
Other assets	$ 0	$ 0

XML

Variable Interest Entities - Schedule of Carrying Value of Assets and Liabilities of PEAKS Trust (Parenthetical) (Detail) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2013	Feb. 28, 2013	Dec. 31, 2012
Variable Interest Entity [Line Items]
Allowance for Loan losses	$ 0	$ 0	$ 0
Allowance for loan losses	29,349		0
PEAKS Trust Student Loans [Member]
Variable Interest Entity [Line Items]
Allowance for Loan losses	29,349	0
Allowance for loan losses		0
Excluding current portion, less allowance for loan losses	$ 29,349

XML

Stock Repurchases - Additional Information (Detail) In Millions, unless otherwise specified	Dec. 31, 2013
Equity [Abstract]
Shares remaining available for repurchase	7.8

XML

Revision of 2011 and 2012 Financial Statements - Effect of Revisions on Affected Line Items on Consolidated Statement of Income (Detail) (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended								12 Months Ended
	Dec. 31, 2013	Sep. 30, 2013	Jun. 30, 2013	Mar. 31, 2013	Dec. 31, 2012	Sep. 30, 2012	Jun. 30, 2012	Mar. 31, 2012	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011
Statement of Income Data:
Revenue	$ 267,173	$ 259,617	$ 260,459	$ 285,062	$ 305,572	$ 313,791	$ 328,061	$ 339,209	$ 1,072,311	$ 1,286,633	$ 1,499,977
Cost of educational services	118,432	120,204	123,541	124,176	129,394	133,948	140,067	134,941	486,353	538,350	553,065
Student services and administrative expenses	101,303	96,182	98,335	101,721	88,995	104,647	105,895	101,319	397,541	400,856	414,156
Settlement cost									(46,000)	21,750	0
Asset impairment					15,166	0	0	0	0	15,166	0
Legal and other investigation costs	3,121	2,089	213	1,500	0	0	873	0	6,923	873	0
Loss related to private student loan programs										0
Loss related to loan program guarantees	82,335	4,826	0	3,803	88,970	5,095	3,906	3,054	90,964	101,025	23,500
Total costs and expenses									1,011,130	1,056,270	990,721
Operating income	(46,666)	19,934	34,051	53,862	(16,953)	70,101	77,320	99,895	61,181	230,363	509,256
Income before provision for income taxes	(53,777)	12,760	26,707	(22,926)	(17,814)	69,205	76,568	100,029	(37,236)	227,988	510,333
Provision for income taxes	(14,396)	3,336	6,503	(5,655)	(7,740)	26,747	30,627	39,384	(10,212)	89,018	201,247
Net income	(39,381)	9,424	20,204	(17,271)	(10,074)	42,458	45,941	60,645	(27,024)	138,970	309,086
Earnings per share:
Basic	$ (1.68)	$ 0.40	$ 0.86	$ (0.74)	$ (0.44)	$ 1.82	$ 1.96	$ 2.39	$ (1.15)	$ 5.82	$ 11.27
Diluted	$ (1.68)	$ 0.40	$ 0.80	$ (0.63)	$ (0.44)	$ 1.81	$ 1.95	$ 2.37	$ (1.15)	$ 5.79	$ 11.18
As Previously Reported [Member]
Statement of Income Data:
Revenue										1,287,209	1,499,949
Cost of educational services										539,223	553,065
Student services and administrative expenses										422,345	439,808
Settlement cost										21,750
Asset impairment										0
Legal and other investigation costs										0
Loss related to private student loan programs										71,102
Loss related to loan program guarantees										0	0
Total costs and expenses										1,054,420	992,873
Operating income										232,789	507,076
Income before provision for income taxes										230,414	508,153
Provision for income taxes										89,949	200,401
Net income										140,465	307,752
Earnings per share:
Basic										$ 5.88	$ 11.22
Diluted										$ 5.85	$ 11.13
Revisions [Member]
Statement of Income Data:
Revenue										(576)	(28)
Cost of educational services										0	0
Student services and administrative expenses										(21,489)	(25,652)
Settlement cost										0
Asset impairment										0
Legal and other investigation costs										0
Loss related to private student loan programs										0
Loss related to loan program guarantees										23,339	23,500
Total costs and expenses										1,850	(2,152)
Operating income										(2,426)	2,180
Income before provision for income taxes										(2,426)	2,180
Provision for income taxes										(931)	846
Net income										(1,495)	1,334
Reclassifications [Member]
Statement of Income Data:
Revenue										0
Cost of educational services										(873)
Student services and administrative expenses										0
Settlement cost										(21,750)
Asset impairment										15,166
Legal and other investigation costs										873
Loss related to private student loan programs										(71,102)
Loss related to loan program guarantees										77,686
Total costs and expenses										0
Operating income										0
Income before provision for income taxes										0
Provision for income taxes										0
Net income										$ 0

XML

Business and Significant Accounting Policies

12 Months Ended

Dec. 31, 2013

Accounting Policies [Abstract]

Business and Significant Accounting Policies

1. Business and Significant Accounting Policies

Business. ITT Educational Services, Inc. is a leading proprietary provider of postsecondary degree programs in the United States based on revenue and student enrollment. References in these Notes to “we”, “us” and “our” refer to ITT Educational Services, Inc., its wholly-owned subsidiaries and the variable interest entity (“VIE”) of which it is the primary beneficiary, unless the context requires or indicates otherwise. As of December 31, 2013, we were offering:

• master, bachelor and associate degree programs to approximately 57,000 students at ITT Technical Institute and Daniel Webster College locations; and

• short-term information technology and business learning solutions for individuals.

In addition, we offered one or more of our online education programs to students who are located in all 50 states. As of December 31, 2013, we had 149 college locations (including 147 campuses and two learning sites) in 39 states and one training facility. All of our college locations are authorized by the applicable education authorities of the states in which they operate and are accredited by an accrediting commission recognized by the U.S. Department of Education (“ED”). We have provided career-oriented education programs since 1969 under the “ITT Technical Institute” name and since June 2009 under the “Daniel Webster College” name. In August 2013, we acquired all of the membership interests of Cable Holdings, LLC (“Cable Holdings”), an education company that offers short-term information technology and business learning solutions for individuals. See Note 4 – Acquisitions, for additional discussion of the acquisition of Cable Holdings. Our corporate headquarters are located in Carmel, Indiana.

Basis of Presentation. The accompanying consolidated financial statements include the accounts of our wholly-owned subsidiaries and the VIE that we consolidate, and have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) and pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”). Arrangements where we may have a variable interest in another party are evaluated in accordance with the provisions of Financial Accounting Standards Board (“FASB”) Accounting Standards Codification ^TM (“ASC” or “Codification”) 810, “Consolidation” (“ASC 810”), to determine whether we would be required to consolidate the other party in our consolidated financial statements. See Note 10 – Variable Interest Entities, for a further discussion of those entities in which we held a variable interest and the consolidation of one of those entities in our consolidated financial statements as of December 31, 2013. All significant intercompany balances and transactions are eliminated upon consolidation.

Use of Estimates. The preparation of these consolidated financial statements, in accordance with GAAP, includes estimates and assumptions that are determined by our management. Actual results could differ materially from the estimates. Significant accounting estimates and assumptions are used for, but not limited to:

• the allowance for doubtful accounts;

• useful lives of tangible and intangible assets;

• asset impairments;

• fair value of the assets and liabilities of the PEAKS Trust upon consolidation;

• the provision for PEAKS Trust student loan losses;

• self insurance;

• pension liabilities;

• stock-based compensation;

• guarantees;

• unrecognized tax benefits; and

• litigation exposures.

Cash Equivalents. Highly liquid investments purchased with an original maturity of three months or less are considered cash equivalents.

Restricted Cash. The funds from the federal student financial aid programs under Title IV (“Title IV Programs”) of the Higher Education Act of 1965, as amended (“HEA”), and certain other monies transferred to us by electronic funds transfer, are subject to holding restrictions before they can be drawn into our cash account. The funds subject to these holding periods are identified as restricted cash until they are applied to the students’ accounts. In addition, funds held for students from Title IV Programs that result in a credit balance on a student’s account are also reflected as restricted cash on our Consolidated Balance Sheet. The amount of these funds included in restricted cash on our Consolidated Balance Sheet as of December 31, 2013 was $2,433.

Beginning on February 28, 2013, we consolidated a VIE in our consolidated financial statements. Funds held by this VIE are classified as restricted cash on our Consolidated Balance Sheet, because those funds can only be used to satisfy the obligations of the VIE. Funds held by the VIE included in restricted cash on our Consolidated Balance Sheet as of December 31, 2013 were $2,593.

We also maintain an escrow account for a guarantee obligation to an unaffiliated third party under a private education loan program for our students. The funds in this escrow account are considered restricted cash and classified as other assets. The balance in this escrow account was approximately $8,626 as of December 31, 2013 and approximately $8,622 as of December 31, 2012.

Investments. We classify our investments in marketable securities as available-for-sale or held-to-maturity depending on our investment intentions with regard to those securities on the date of acquisition. Investments classified as available-for-sale are recorded at their market value. Investments are classified as either current or non-current based on the maturity date of each security. We did not hold any investments in marketable securities as of December 31, 2013 or December 31, 2012.

The cost of securities sold is based on the specific identification method.

Accounts Receivable and Allowance for Doubtful Accounts. We extend unsecured credit to our institutions’ students for tuition and fees, and we record a receivable for the tuition and fees earned in excess of the payment received from or on behalf of a student. The average student receivable balance is insignificant. We record an allowance for doubtful accounts with respect to accounts receivable based on the students’ credit profiles and our historical collection experience related to amounts owed by our students with similar credit profiles. If our collection trends were to differ significantly from our historical collection experience, we would make a corresponding adjustment to our allowance for doubtful accounts.

When a student is no longer enrolled in an education program at one of our campuses, we increase the allowance for doubtful accounts related to the former student’s receivable balance to reflect the amount we estimate will not be collected. The amount that we estimate will not be collected is based on a review of the historical collection experience for our campuses, adjusted as needed to reflect other facts and circumstances. We review the collection activity after a student withdraws or graduates from an education program and write off the accounts receivable, if we conclude that collection of the balance is not probable.

PEAKS Trust Student Loans. Beginning on February 28, 2013, we consolidated the VIE, which is a trust (the “PEAKS Trust”) that purchased, owns and collects private education loans (the “PEAKS Trust Student Loans”) made under the PEAKS Private Student Loan Program (the “PEAKS Program”), in our consolidated financial statements (the “Consolidation”). Certain of the PEAKS Trust Student Loans had evidence of credit deterioration since the date those loans were originated and, therefore, we determined that, at the date of the Consolidation, it was probable that all contractually required payments under those loans would not be collected. We recorded those loans at fair value at the date of the Consolidation. We also recorded at fair value PEAKS Trust Student Loans that did not individually have evidence of deteriorated credit quality at the date of the Consolidation, because we determined that the application of an expected cash flow model provided the most reasonable presentation and this accounting treatment was consistent with the American Institute of Certified Public Accountants’ (the “AICPA”) December 18, 2009 Confirmation Letter (the “Confirmation Letter”). No allowance for loan losses was recorded at the date of the Consolidation, because all of the PEAKS Trust Student Loans were recorded at fair value and future credit losses are considered in the estimate of fair value. Cash flows from PEAKS Trust Student Loans expected to be collected within the next 12 months have been classified as current in our consolidated balance sheet. The remaining balance is classified as non-current.

We aggregated the individual PEAKS Trust Student Loans into 24 separate pools of loans, based on common risk characteristics of the individual loans, which included:

• the fiscal quarter in which the PEAKS Trust Student Loan was originated; and

• the consumer credit score of the borrower.

Loans that did not have evidence of deteriorated credit quality were not aggregated in the same pools with loans that had evidence of deteriorated credit quality. The same aggregation criteria, however, were used to determine those loan pools. Each loan pool is accounted for as a single asset with a single composite interest rate and an aggregate expectation of cash flows.

On a quarterly basis, we estimate the total principal and interest expected to be collected over the remaining life of each loan pool. These estimates include assumptions regarding default rates, forbearances and other factors that reflect then-current market conditions. If a decrease in the expected cash flows of a loan pool is probable and would cause the expected cash flows to be less than the expected cash flows at the date of the Consolidation or the end of the previous fiscal quarter, whichever is later, we would record the impairment as:

• a provision for PEAKS Trust student loan losses in our Consolidated Statement of Income; and

• an increase in the allowance for loan losses on our Consolidated Balance Sheet.

The provision for PEAKS Trust student loan losses represents the increase in the allowance for loan losses that occurred during the period. The allowance for loan losses is the difference between the carrying value and the total present value of the expected principal and interest collections of each loan pool, discounted by the loan pool’s effective interest rate at the date of the Consolidation or the end of the previous fiscal quarter, whichever is later. If a significant increase in the expected cash flows of a loan pool is probable and would cause the expected cash flows to be greater than the expected cash flows at the date of the Consolidation or the end of the previous fiscal quarter, whichever is later, we would:

• first reverse any allowance for loan losses with respect to that loan pool that was previously recorded on our Consolidated Balance Sheet, up to the amount of that allowance; and

• record any remaining increase prospectively as a yield adjustment over the remaining estimated lives of the loans in the loan pool.

The impact of prepayments, changes in variable interest rates and any other changes in the timing of the expected cash flows of a loan pool are recognized prospectively as adjustments to interest income.

The impact of modifications made to loans in a loan pool is incorporated into our quarterly assessment of whether a significant change in the expected cash flows of the loan pool is probable or has occurred. We consider the historical loss experience associated with the PEAKS Trust Student Loans in estimating the future probabilities of default for all of the outstanding PEAKS Trust Student Loans.

The excess of any cash flows expected to be collected with respect to a loan pool of the PEAKS Trust Student Loans over the carrying value of the loan pool is referred to as the accretable yield. The accretable yield is not reported on our Consolidated Balance Sheets, but it is accreted and included as interest income at a level rate of return over the remaining estimated life of the loan pool. If we determine that the timing and/or amounts of expected cash flows with respect to a loan pool are not reasonably estimable, no interest income would be accreted and the loans in that loan pool would be reported as nonaccrual loans. We recognize the accretable yield of the PEAKS Trust Student Loans as interest income, because the timing and the amounts of the expected cash flows are reasonably estimable.

If a PEAKS Trust Student Loan is paid in full or charged-off, that loan is removed from the loan pool. If the amount of the proceeds received for that loan, if any, is less than the unpaid principal balance of the loan, the difference is first applied against the loan pool’s nonaccretable difference for principal losses (i.e., the lifetime credit loss estimate established at the date of the Consolidation). If the nonaccretable difference for principal losses with respect to a loan pool has been fully depleted, any unpaid loan principal balance in excess of the proceeds received for the loan is charged-off against the loan pool’s allowance for loan losses. We do not recognize charge-offs of individual PEAKS Trust Student Loans when those loans reach certain stages of delinquency, because those loans are accounted for at a loan pool level.

If any portion of a PEAKS Trust Student Loan that had previously been charged-off is recovered, the amount collected increases the applicable loan pool’s nonaccretable difference. If the nonaccretable difference with respect to the applicable loan pool has been fully depleted, the amount collected increases that loan pool’s allowance for loan losses.

Property and Equipment. Property and equipment is recorded on our consolidated financial statements at cost, less accumulated depreciation and amortization. Maintenance and repairs are expensed as incurred. Expenditures that extend the useful lives of our assets are capitalized.

Developed or purchased software is capitalized in accordance with ASC 350, “Intangibles – Goodwill and Other.” Facility construction costs are capitalized as incurred, with depreciation commencing when the facility is placed in service.

Provisions for depreciation and amortization of property and equipment have generally been made using the straight-line method over the following ranges of useful lives:

Type of Property and Equipment	Estimated Useful Life
Furniture and equipment	3 to 10 years
Leasehold, building and land improvements	3 to 14 years
Buildings	20 to 40 years

We amortize leasehold improvements using the straight-line method over the shorter of the life of the improvement or the term of the underlying lease. Land is not depreciated.

Asset Impairment. We regularly review our long-lived assets (which are primarily property and equipment) and notes receivable for impairment whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable. We evaluate each note receivable individually for impairment.

If we determine that the carrying amount of a long-lived asset exceeds the total amount of the estimated undiscounted future cash flows from that asset, we would determine the fair value of that asset. If the fair value is less than the net book value of the long-lived asset, we recognize an impairment loss in the amount of the difference. We base our impairment analyses of long-lived assets on our current business strategy, expected growth rates and estimates of future economic and regulatory conditions.

We consider a note receivable to be impaired when, based on current information or events, it is probable that we will be unable to collect all amounts of principal and interest owed on the underlying note according to the terms of the note. If the present value of the expected future cash flows from the note receivable discounted at the underlying note’s effective interest rate is less than the carrying value of the underlying note, we recognize an impairment loss in the amount of the difference.

Insurance Liabilities. We record liabilities and related expenses for medical, workers compensation and other insurance in accordance with the contractual terms of the insurance policies. We record the total liabilities that are estimable and probable as of the reporting date for our insurance liabilities that we self-insure. The accounting for our self-insured arrangements involves estimates and judgments to determine the liability to be recorded for reported claims and claims incurred but not reported. We consider our historical experience in determining the appropriate insurance reserves to record. If our current insurance claim trends were to differ significantly from our historic claim experience, however, we would make a corresponding adjustment to our insurance reserves.

Contingent Liabilities. We are subject to various claims and contingencies in the ordinary course of our business, including those related to litigation, government investigations, business transactions, guarantee obligations and employee-related matters, among others. When we are aware of a claim or potential claim, we assess the likelihood of any loss or exposure. If it is probable that a loss will result and the amount of the loss can be reasonably estimated, we record a liability for the loss. The liability recorded includes probable and estimable legal costs associated with the claim or potential claim. If the loss is not probable or the amount of the loss cannot be reasonably estimated, we disclose the claim if the likelihood of a potential loss is reasonably possible and the amount involved is material.

We determine the amount of our contingent liabilities related to our guarantee obligations by estimating the expected payments to be made under the guarantee and the amount that we expect to be repaid to us. We also consider the payment options available to us. To the extent that we project that we will have sufficient funds available to discharge our guarantee obligations for the outstanding balance of those private education loans that have been charged off at the time that they default, we incorporate that assumption into our estimate of the contingent liability. If we do not believe that we will have sufficient funds available, we assume that we will make monthly payments to satisfy our guarantee obligations as allowed under the applicable agreements. We discount the amount of those expected future monthly payments at a risk-free rate of interest. Making payments for the full amount of the charged-off loans at the time that they default results in us paying a lesser amount than we otherwise would have been required to pay under our guarantee obligations in future periods and, therefore, results in an estimated contingent liability that is less than if we had assumed we would make monthly payments in the future.

We discount the amounts that we expect will be repaid to us to reflect a risk-free rate of interest. The difference between the amount of the guarantee payments that we expect to make and the discounted amount that we expect will be repaid to us is included in our estimate of the amount of our contingent liability related to our guarantee obligations.

Debt. The PEAKS Trust issued senior debt in the initial aggregate principal amount of $300,000 (the “PEAKS Senior Debt”). In accordance with ASC 810, we included the PEAKS Senior Debt on our consolidated balance sheet at its fair value as of February 28, 2013, the date of the Consolidation. The difference between the fair value of the PEAKS Senior Debt and its outstanding aggregate principal balance at the date of the Consolidation was recorded as an accrued discount on our consolidated balance sheet at the date of the Consolidation. The accrued discount will be recognized in interest expense at a level rate of return over the life of the PEAKS Senior Debt.

Treasury Stock. Repurchases of outstanding shares of our common stock are recorded at cost. Treasury stock issued in fulfillment of stock-based compensation awards or other obligations is accounted for under the last in, first out method. We record “losses” from the sale of treasury stock that exceed previous net “gains” from the sale of treasury stock as a charge to retained earnings.

Recognition of Revenue. Tuition revenue is recorded on a straight-line basis over the length of the applicable course to the extent that we consider the collectability of that revenue to be reasonably assured. If a student withdraws from an institution, the standards of most state education authorities that regulate our institutions, the accrediting commissions that accredit our institutions and our own internal policy limit a student’s obligation for tuition and fees to the institution depending on when a student withdraws during an academic term (“Refund Policies”). The terms of the Refund Policies vary by state, and the limitations imposed by the Refund Policies are generally based on the portion of the academic term that has elapsed at the time the student withdraws. Generally, the greater the portion of the academic term that has elapsed at the time the student withdraws, the greater the student’s obligation is to the institution for the tuition and fees related to that academic term. We record revenue net of any refunds that result from any applicable Refund Policy. On an individual student basis, tuition earned in excess of cash received is recorded as accounts receivable, and cash received in excess of tuition earned is recorded as deferred revenue.

We do not charge a separate fee for textbooks that students use in their education programs. We record the cost of these textbooks in prepaid expenses and other current assets and amortize the cost of textbooks on a straight-line basis over the applicable course length. Tool kit sales, and the related cost, are recognized when the student receives the tool kit. Academic fees (which are charged only one time to students on their first day of class attendance) are recognized as revenue on a straight-line basis over the average length of the education program. If a student withdraws from an institution, all unrecognized revenue relating to his or her fees, net of any refunds that result from any applicable Refund Policy, is recognized upon the student’s departure. An administrative fee is charged to a student and recognized as revenue when the student withdraws or graduates from an education program at an institution. We reassess the collectability of tuition revenue on a student-by-student basis throughout our revenue recognition period. We reassess the collectability of tuition revenue that we may earn based on new information and changes in the facts and circumstances relevant to a student’s ability to pay, which primarily include when a student withdraws from a program of study.

We report 12 weeks of tuition revenue in each of our four fiscal quarters. We standardized the number of weeks of revenue reported in each fiscal quarter, because the timing of student breaks in a calendar quarter can fluctuate from quarter to quarter each year. The total number of weeks of school during each year is 48.

We provide institutional scholarships and awards to our institutions’ students, which those students use to help reduce their educational expenses. Institutional scholarships and awards reduce the students’ tuition charges and are recorded as offsets to revenue in the period in which the tuition is earned.

Interest income on the PEAKS Trust Student Loans, which is the accretion of the accretable yield on the PEAKS Trust Student Loans, is included in revenue and recognized based on the effective interest method as described in Note 11 – PEAKS Trust Student Loans.

Advertising Costs. We expense all advertising costs as incurred. Advertising expense, which is included in Student services and administrative expenses in our Consolidated Statements of Income, was $177,791 in the year ended December 31, 2013, $174,009 in the year ended December 31, 2012 and $192,080 in the year ended December 2011.

Equity-Based Compensation. Stock-based compensation cost for our equity instruments exchanged for employee and director services is measured at the date of grant, based on the calculated fair value of the grant and is recognized as an expense on a straight-line basis over the period of time that the grantee must provide services to us before the stock-based compensation is fully vested. The vesting period is generally the period set forth in the agreement granting the stock-based compensation. Under the terms of our stock-based compensation plans, some grants immediately vest in full when the grantee’s employment or service terminates due to death or disability, and, for grants made prior to November 24, 2010, when he or she retires. As a result, in certain circumstances, the period of time that the grantee must provide services to us in order for that stock-based compensation to fully vest may be less than the vesting period set forth in the agreement granting the stock-based compensation. In these instances, compensation expense will be recognized over this shorter period.

We use a binomial option pricing model to determine the fair value of stock options granted and we use the market price of our common stock to determine the fair value of restricted stock and restricted stock units (“RSUs”) granted. The binomial option pricing model takes into account the variables defined below:

• “Volatility” is a statistical measure of the extent to which the stock price is expected to fluctuate during a period and combines our historical stock price volatility and the implied volatility as measured by actively traded stock options.

• “Expected life” is the weighted average period that those stock options are expected to remain outstanding, based on the historical patterns of our stock option exercises, as adjusted to reflect the current position-level demographics of the stock option grantees.

• “Risk-free interest rate” is based on interest rates for terms that are similar to the expected life of the stock options.

• “Dividend yield” is based on our historical and expected future dividend payment practices.

We generally issue shares of our common stock from treasury shares upon the exercise of stock options or vesting of RSUs. As of December 31, 2013, approximately 13.7 million shares of our common stock were held in treasury. Our Board of Directors has authorized us to repurchase outstanding shares of our common stock, but we do not expect to repurchase any outstanding shares of our common stock in 2014. See Note 8 – Stock Repurchases, for additional disclosures regarding our stock repurchases.

Operating Leases. We lease our non-owned facilities under operating lease agreements. Common provisions within our operating lease agreements include:

• renewal options, which can be exercised after the initial lease term;

• rent escalation clauses;

• tenant improvement allowances; and

• rent holidays.

We record the rent expense associated with each operating lease agreement evenly over the term of the lease. The difference between the amount of rent expense recorded and the amount of rent actually paid is recorded as either prepaid or accrued rent, which is included in Other assets or Other liabilities, on our Consolidated Balance Sheets. We recognize a liability for the costs to terminate the lease of a leased facility when we cease using that leased facility.

Income Taxes. We account for income taxes using the asset and liability method, which requires the recognition of deferred tax assets and liabilities for expected future tax consequences of temporary differences that currently exist between the tax bases and financial reporting bases of our assets and liabilities.

We follow the guidance under ASC 740, “Income Taxes” (“ASC 740”), which prescribes a single, comprehensive model for how a company should recognize, measure, present and disclose in its financial statements uncertain tax positions that the company has taken or expects to take on its tax returns. This guidance requires us to evaluate whether it is more likely than not, based on the technical merits of a tax position, that the benefits resulting from the position will be realized by us.

We record interest and penalties related to unrecognized tax benefits in income tax expense.

XML

Stock Repurchases - Information Regarding Shares of Common Stock Repurchased (Detail) (USD $) In Thousands, except Per Share data, unless otherwise specified	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011
Equity [Abstract]
Number of shares	0	3,025,700
Total cost	$ 0	$ 207,918	$ 282,701
Average cost per share	$ 0.00	$ 68.72

XML

Business and Significant Accounting Policies - Additional Information (Detail) (USD $) In Thousands, except Share data, unless otherwise specified	12 Months Ended
	Dec. 31, 2013 Week State Attendant Facility Location	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2013 PEAKS Trust Student Loans [Member] Loan	Feb. 28, 2013 PEAKS Trust Student Loans [Member]	Dec. 31, 2013 PEAKS Senior Debt [Member]	Jan. 31, 2010 PEAKS Senior Debt [Member]
Business And Summary Of Significant Accounting Policies [Line Items]
Number of students in degree programs	57,000
Number of states where online programs are offered	50
Number of locations	149
Number of campuses	147
Number of learning sites	2
Number of states	39
Number of training facilities	1
Restricted cash	$ 5,636	$ 3,478		$ 2,593	$ 1,703
Restricted cash in the variable interest entity	2,593
Escrow account balance	8,626	8,622
Number of loan pools				24
Senior debt in the aggregate principal amount						300,000	300,000
Number of weeks of tuition revenue reported per quarter	12
Number of weeks of school annually	48
Advertising expense	$ 177,791	$ 174,009	$ 192,080
Treasury stock, shares	13,698,716	13,744,395

XML

Business and Significant Accounting Policies (Tables)

12 Months Ended

Dec. 31, 2013

Accounting Policies [Abstract]

Schedule of Property Plant and Equipment Estimated Useful Lives

Provisions for depreciation and amortization of property and equipment have generally been made using the straight-line method over the following ranges of useful lives:

Type of Property and Equipment	Estimated Useful Life
Furniture and equipment	3 to 10 years
Leasehold, building and land improvements	3 to 14 years
Buildings	20 to 40 years

XML

Business and Significant Accounting Policies (Policies)

12 Months Ended

Dec. 31, 2013

Accounting Policies [Abstract]

Business

Business. ITT Educational Services, Inc. is a leading proprietary provider of postsecondary degree programs in the United States based on revenue and student enrollment. References in these Notes to “we”, “us” and “our” refer to ITT Educational Services, Inc., its wholly-owned subsidiaries and the variable interest entity (“VIE”) of which it is the primary beneficiary, unless the context requires or indicates otherwise. As of December 31, 2013, we were offering:

• master, bachelor and associate degree programs to approximately 57,000 students at ITT Technical Institute and Daniel Webster College locations; and

• short-term information technology and business learning solutions for individuals.

In addition, we offered one or more of our online education programs to students who are located in all 50 states. As of December 31, 2013, we had 149 college locations (including 147 campuses and two learning sites) in 39 states and one training facility. All of our college locations are authorized by the applicable education authorities of the states in which they operate and are accredited by an accrediting commission recognized by the U.S. Department of Education (“ED”). We have provided career-oriented education programs since 1969 under the “ITT Technical Institute” name and since June 2009 under the “Daniel Webster College” name. In August 2013, we acquired all of the membership interests of Cable Holdings, LLC (“Cable Holdings”), an education company that offers short-term information technology and business learning solutions for individuals. See Note 4 – Acquisitions, for additional discussion of the acquisition of Cable Holdings. Our corporate headquarters are located in Carmel, Indiana.

Basis of Presentation

Basis of Presentation. The accompanying consolidated financial statements include the accounts of our wholly-owned subsidiaries and the VIE that we consolidate, and have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) and pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”). Arrangements where we may have a variable interest in another party are evaluated in accordance with the provisions of Financial Accounting Standards Board (“FASB”) Accounting Standards Codification ^TM (“ASC” or “Codification”) 810, “Consolidation” (“ASC 810”), to determine whether we would be required to consolidate the other party in our consolidated financial statements. See Note 10 – Variable Interest Entities, for a further discussion of those entities in which we held a variable interest and the consolidation of one of those entities in our consolidated financial statements as of December 31, 2013. All significant intercompany balances and transactions are eliminated upon consolidation.

Use of Estimates

Use of Estimates. The preparation of these consolidated financial statements, in accordance with GAAP, includes estimates and assumptions that are determined by our management. Actual results could differ materially from the estimates. Significant accounting estimates and assumptions are used for, but not limited to:

• the allowance for doubtful accounts;

• useful lives of tangible and intangible assets;

• asset impairments;

• fair value of the assets and liabilities of the PEAKS Trust upon consolidation;

• the provision for PEAKS Trust student loan losses;

• self insurance;

• pension liabilities;

• stock-based compensation;

• guarantees;

• unrecognized tax benefits; and

• litigation exposures.

Cash Equivalents

Cash Equivalents. Highly liquid investments purchased with an original maturity of three months or less are considered cash equivalents.

Restricted Cash

Restricted Cash. The funds from the federal student financial aid programs under Title IV (“Title IV Programs”) of the Higher Education Act of 1965, as amended (“HEA”), and certain other monies transferred to us by electronic funds transfer, are subject to holding restrictions before they can be drawn into our cash account. The funds subject to these holding periods are identified as restricted cash until they are applied to the students’ accounts. In addition, funds held for students from Title IV Programs that result in a credit balance on a student’s account are also reflected as restricted cash on our Consolidated Balance Sheet. The amount of these funds included in restricted cash on our Consolidated Balance Sheet as of December 31, 2013 was $2,433.

Beginning on February 28, 2013, we consolidated a VIE in our consolidated financial statements. Funds held by this VIE are classified as restricted cash on our Consolidated Balance Sheet, because those funds can only be used to satisfy the obligations of the VIE. Funds held by the VIE included in restricted cash on our Consolidated Balance Sheet as of December 31, 2013 were $2,593.

We also maintain an escrow account for a guarantee obligation to an unaffiliated third party under a private education loan program for our students. The funds in this escrow account are considered restricted cash and classified as other assets. The balance in this escrow account was approximately $8,626 as of December 31, 2013 and approximately $8,622 as of December 31, 2012.

Investments

Investments. We classify our investments in marketable securities as available-for-sale or held-to-maturity depending on our investment intentions with regard to those securities on the date of acquisition. Investments classified as available-for-sale are recorded at their market value. Investments are classified as either current or non-current based on the maturity date of each security. We did not hold any investments in marketable securities as of December 31, 2013 or December 31, 2012.

The cost of securities sold is based on the specific identification method.

Accounts Receivable and Allowance for Doubtful Accounts

Accounts Receivable and Allowance for Doubtful Accounts. We extend unsecured credit to our institutions’ students for tuition and fees, and we record a receivable for the tuition and fees earned in excess of the payment received from or on behalf of a student. The average student receivable balance is insignificant. We record an allowance for doubtful accounts with respect to accounts receivable based on the students’ credit profiles and our historical collection experience related to amounts owed by our students with similar credit profiles. If our collection trends were to differ significantly from our historical collection experience, we would make a corresponding adjustment to our allowance for doubtful accounts.

When a student is no longer enrolled in an education program at one of our campuses, we increase the allowance for doubtful accounts related to the former student’s receivable balance to reflect the amount we estimate will not be collected. The amount that we estimate will not be collected is based on a review of the historical collection experience for our campuses, adjusted as needed to reflect other facts and circumstances. We review the collection activity after a student withdraws or graduates from an education program and write off the accounts receivable, if we conclude that collection of the balance is not probable.

PEAKS Trust Student Loans

PEAKS Trust Student Loans. Beginning on February 28, 2013, we consolidated the VIE, which is a trust (the “PEAKS Trust”) that purchased, owns and collects private education loans (the “PEAKS Trust Student Loans”) made under the PEAKS Private Student Loan Program (the “PEAKS Program”), in our consolidated financial statements (the “Consolidation”). Certain of the PEAKS Trust Student Loans had evidence of credit deterioration since the date those loans were originated and, therefore, we determined that, at the date of the Consolidation, it was probable that all contractually required payments under those loans would not be collected. We recorded those loans at fair value at the date of the Consolidation. We also recorded at fair value PEAKS Trust Student Loans that did not individually have evidence of deteriorated credit quality at the date of the Consolidation, because we determined that the application of an expected cash flow model provided the most reasonable presentation and this accounting treatment was consistent with the American Institute of Certified Public Accountants’ (the “AICPA”) December 18, 2009 Confirmation Letter (the “Confirmation Letter”). No allowance for loan losses was recorded at the date of the Consolidation, because all of the PEAKS Trust Student Loans were recorded at fair value and future credit losses are considered in the estimate of fair value. Cash flows from PEAKS Trust Student Loans expected to be collected within the next 12 months have been classified as current in our consolidated balance sheet. The remaining balance is classified as non-current.

We aggregated the individual PEAKS Trust Student Loans into 24 separate pools of loans, based on common risk characteristics of the individual loans, which included:

• the fiscal quarter in which the PEAKS Trust Student Loan was originated; and

• the consumer credit score of the borrower.

Loans that did not have evidence of deteriorated credit quality were not aggregated in the same pools with loans that had evidence of deteriorated credit quality. The same aggregation criteria, however, were used to determine those loan pools. Each loan pool is accounted for as a single asset with a single composite interest rate and an aggregate expectation of cash flows.

On a quarterly basis, we estimate the total principal and interest expected to be collected over the remaining life of each loan pool. These estimates include assumptions regarding default rates, forbearances and other factors that reflect then-current market conditions. If a decrease in the expected cash flows of a loan pool is probable and would cause the expected cash flows to be less than the expected cash flows at the date of the Consolidation or the end of the previous fiscal quarter, whichever is later, we would record the impairment as:

• a provision for PEAKS Trust student loan losses in our Consolidated Statement of Income; and

• an increase in the allowance for loan losses on our Consolidated Balance Sheet.

The provision for PEAKS Trust student loan losses represents the increase in the allowance for loan losses that occurred during the period. The allowance for loan losses is the difference between the carrying value and the total present value of the expected principal and interest collections of each loan pool, discounted by the loan pool’s effective interest rate at the date of the Consolidation or the end of the previous fiscal quarter, whichever is later. If a significant increase in the expected cash flows of a loan pool is probable and would cause the expected cash flows to be greater than the expected cash flows at the date of the Consolidation or the end of the previous fiscal quarter, whichever is later, we would:

• first reverse any allowance for loan losses with respect to that loan pool that was previously recorded on our Consolidated Balance Sheet, up to the amount of that allowance; and

• record any remaining increase prospectively as a yield adjustment over the remaining estimated lives of the loans in the loan pool.

The impact of prepayments, changes in variable interest rates and any other changes in the timing of the expected cash flows of a loan pool are recognized prospectively as adjustments to interest income.

The impact of modifications made to loans in a loan pool is incorporated into our quarterly assessment of whether a significant change in the expected cash flows of the loan pool is probable or has occurred. We consider the historical loss experience associated with the PEAKS Trust Student Loans in estimating the future probabilities of default for all of the outstanding PEAKS Trust Student Loans.

The excess of any cash flows expected to be collected with respect to a loan pool of the PEAKS Trust Student Loans over the carrying value of the loan pool is referred to as the accretable yield. The accretable yield is not reported on our Consolidated Balance Sheets, but it is accreted and included as interest income at a level rate of return over the remaining estimated life of the loan pool. If we determine that the timing and/or amounts of expected cash flows with respect to a loan pool are not reasonably estimable, no interest income would be accreted and the loans in that loan pool would be reported as nonaccrual loans. We recognize the accretable yield of the PEAKS Trust Student Loans as interest income, because the timing and the amounts of the expected cash flows are reasonably estimable.

If a PEAKS Trust Student Loan is paid in full or charged-off, that loan is removed from the loan pool. If the amount of the proceeds received for that loan, if any, is less than the unpaid principal balance of the loan, the difference is first applied against the loan pool’s nonaccretable difference for principal losses (i.e., the lifetime credit loss estimate established at the date of the Consolidation). If the nonaccretable difference for principal losses with respect to a loan pool has been fully depleted, any unpaid loan principal balance in excess of the proceeds received for the loan is charged-off against the loan pool’s allowance for loan losses. We do not recognize charge-offs of individual PEAKS Trust Student Loans when those loans reach certain stages of delinquency, because those loans are accounted for at a loan pool level.

If any portion of a PEAKS Trust Student Loan that had previously been charged-off is recovered, the amount collected increases the applicable loan pool’s nonaccretable difference. If the nonaccretable difference with respect to the applicable loan pool has been fully depleted, the amount collected increases that loan pool’s allowance for loan losses.

Property and Equipment

Property and Equipment. Property and equipment is recorded on our consolidated financial statements at cost, less accumulated depreciation and amortization. Maintenance and repairs are expensed as incurred. Expenditures that extend the useful lives of our assets are capitalized.

Developed or purchased software is capitalized in accordance with ASC 350, “Intangibles – Goodwill and Other.” Facility construction costs are capitalized as incurred, with depreciation commencing when the facility is placed in service.

Provisions for depreciation and amortization of property and equipment have generally been made using the straight-line method over the following ranges of useful lives:

Type of Property and Equipment	Estimated Useful Life
Furniture and equipment	3 to 10 years
Leasehold, building and land improvements	3 to 14 years
Buildings	20 to 40 years

We amortize leasehold improvements using the straight-line method over the shorter of the life of the improvement or the term of the underlying lease. Land is not depreciated.

Asset Impairment

Asset Impairment. We regularly review our long-lived assets (which are primarily property and equipment) and notes receivable for impairment whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable. We evaluate each note receivable individually for impairment.

If we determine that the carrying amount of a long-lived asset exceeds the total amount of the estimated undiscounted future cash flows from that asset, we would determine the fair value of that asset. If the fair value is less than the net book value of the long-lived asset, we recognize an impairment loss in the amount of the difference. We base our impairment analyses of long-lived assets on our current business strategy, expected growth rates and estimates of future economic and regulatory conditions.

We consider a note receivable to be impaired when, based on current information or events, it is probable that we will be unable to collect all amounts of principal and interest owed on the underlying note according to the terms of the note. If the present value of the expected future cash flows from the note receivable discounted at the underlying note’s effective interest rate is less than the carrying value of the underlying note, we recognize an impairment loss in the amount of the difference.

Insurance Liabilities

Insurance Liabilities. We record liabilities and related expenses for medical, workers compensation and other insurance in accordance with the contractual terms of the insurance policies. We record the total liabilities that are estimable and probable as of the reporting date for our insurance liabilities that we self-insure. The accounting for our self-insured arrangements involves estimates and judgments to determine the liability to be recorded for reported claims and claims incurred but not reported. We consider our historical experience in determining the appropriate insurance reserves to record. If our current insurance claim trends were to differ significantly from our historic claim experience, however, we would make a corresponding adjustment to our insurance reserves.

Contingent Liabilities

Contingent Liabilities. We are subject to various claims and contingencies in the ordinary course of our business, including those related to litigation, government investigations, business transactions, guarantee obligations and employee-related matters, among others. When we are aware of a claim or potential claim, we assess the likelihood of any loss or exposure. If it is probable that a loss will result and the amount of the loss can be reasonably estimated, we record a liability for the loss. The liability recorded includes probable and estimable legal costs associated with the claim or potential claim. If the loss is not probable or the amount of the loss cannot be reasonably estimated, we disclose the claim if the likelihood of a potential loss is reasonably possible and the amount involved is material.

We determine the amount of our contingent liabilities related to our guarantee obligations by estimating the expected payments to be made under the guarantee and the amount that we expect to be repaid to us. We also consider the payment options available to us. To the extent that we project that we will have sufficient funds available to discharge our guarantee obligations for the outstanding balance of those private education loans that have been charged off at the time that they default, we incorporate that assumption into our estimate of the contingent liability. If we do not believe that we will have sufficient funds available, we assume that we will make monthly payments to satisfy our guarantee obligations as allowed under the applicable agreements. We discount the amount of those expected future monthly payments at a risk-free rate of interest. Making payments for the full amount of the charged-off loans at the time that they default results in us paying a lesser amount than we otherwise would have been required to pay under our guarantee obligations in future periods and, therefore, results in an estimated contingent liability that is less than if we had assumed we would make monthly payments in the future.

We discount the amounts that we expect will be repaid to us to reflect a risk-free rate of interest. The difference between the amount of the guarantee payments that we expect to make and the discounted amount that we expect will be repaid to us is included in our estimate of the amount of our contingent liability related to our guarantee obligations.

Debt

Debt. The PEAKS Trust issued senior debt in the initial aggregate principal amount of $300,000 (the “PEAKS Senior Debt”). In accordance with ASC 810, we included the PEAKS Senior Debt on our consolidated balance sheet at its fair value as of February 28, 2013, the date of the Consolidation. The difference between the fair value of the PEAKS Senior Debt and its outstanding aggregate principal balance at the date of the Consolidation was recorded as an accrued discount on our consolidated balance sheet at the date of the Consolidation. The accrued discount will be recognized in interest expense at a level rate of return over the life of the PEAKS Senior Debt.

Treasury Stock

Treasury Stock. Repurchases of outstanding shares of our common stock are recorded at cost. Treasury stock issued in fulfillment of stock-based compensation awards or other obligations is accounted for under the last in, first out method. We record “losses” from the sale of treasury stock that exceed previous net “gains” from the sale of treasury stock as a charge to retained earnings.

Recognition of Revenue

Recognition of Revenue. Tuition revenue is recorded on a straight-line basis over the length of the applicable course to the extent that we consider the collectability of that revenue to be reasonably assured. If a student withdraws from an institution, the standards of most state education authorities that regulate our institutions, the accrediting commissions that accredit our institutions and our own internal policy limit a student’s obligation for tuition and fees to the institution depending on when a student withdraws during an academic term (“Refund Policies”). The terms of the Refund Policies vary by state, and the limitations imposed by the Refund Policies are generally based on the portion of the academic term that has elapsed at the time the student withdraws. Generally, the greater the portion of the academic term that has elapsed at the time the student withdraws, the greater the student’s obligation is to the institution for the tuition and fees related to that academic term. We record revenue net of any refunds that result from any applicable Refund Policy. On an individual student basis, tuition earned in excess of cash received is recorded as accounts receivable, and cash received in excess of tuition earned is recorded as deferred revenue.

We do not charge a separate fee for textbooks that students use in their education programs. We record the cost of these textbooks in prepaid expenses and other current assets and amortize the cost of textbooks on a straight-line basis over the applicable course length. Tool kit sales, and the related cost, are recognized when the student receives the tool kit. Academic fees (which are charged only one time to students on their first day of class attendance) are recognized as revenue on a straight-line basis over the average length of the education program. If a student withdraws from an institution, all unrecognized revenue relating to his or her fees, net of any refunds that result from any applicable Refund Policy, is recognized upon the student’s departure. An administrative fee is charged to a student and recognized as revenue when the student withdraws or graduates from an education program at an institution. We reassess the collectability of tuition revenue on a student-by-student basis throughout our revenue recognition period. We reassess the collectability of tuition revenue that we may earn based on new information and changes in the facts and circumstances relevant to a student’s ability to pay, which primarily include when a student withdraws from a program of study.

We report 12 weeks of tuition revenue in each of our four fiscal quarters. We standardized the number of weeks of revenue reported in each fiscal quarter, because the timing of student breaks in a calendar quarter can fluctuate from quarter to quarter each year. The total number of weeks of school during each year is 48.

We provide institutional scholarships and awards to our institutions’ students, which those students use to help reduce their educational expenses. Institutional scholarships and awards reduce the students’ tuition charges and are recorded as offsets to revenue in the period in which the tuition is earned.

Interest income on the PEAKS Trust Student Loans, which is the accretion of the accretable yield on the PEAKS Trust Student Loans, is included in revenue and recognized based on the effective interest method as described in Note 11 – PEAKS Trust Student Loans.

Advertising Costs

Advertising Costs. We expense all advertising costs as incurred. Advertising expense, which is included in Student services and administrative expenses in our Consolidated Statements of Income, was $177,791 in the year ended December 31, 2013, $174,009 in the year ended December 31, 2012 and $192,080 in the year ended December 2011.

Equity-Based Compensation

Equity-Based Compensation. Stock-based compensation cost for our equity instruments exchanged for employee and director services is measured at the date of grant, based on the calculated fair value of the grant and is recognized as an expense on a straight-line basis over the period of time that the grantee must provide services to us before the stock-based compensation is fully vested. The vesting period is generally the period set forth in the agreement granting the stock-based compensation. Under the terms of our stock-based compensation plans, some grants immediately vest in full when the grantee’s employment or service terminates due to death or disability, and, for grants made prior to November 24, 2010, when he or she retires. As a result, in certain circumstances, the period of time that the grantee must provide services to us in order for that stock-based compensation to fully vest may be less than the vesting period set forth in the agreement granting the stock-based compensation. In these instances, compensation expense will be recognized over this shorter period.

We use a binomial option pricing model to determine the fair value of stock options granted and we use the market price of our common stock to determine the fair value of restricted stock and restricted stock units (“RSUs”) granted. The binomial option pricing model takes into account the variables defined below:

• “Volatility” is a statistical measure of the extent to which the stock price is expected to fluctuate during a period and combines our historical stock price volatility and the implied volatility as measured by actively traded stock options.

• “Expected life” is the weighted average period that those stock options are expected to remain outstanding, based on the historical patterns of our stock option exercises, as adjusted to reflect the current position-level demographics of the stock option grantees.

• “Risk-free interest rate” is based on interest rates for terms that are similar to the expected life of the stock options.

• “Dividend yield” is based on our historical and expected future dividend payment practices.

We generally issue shares of our common stock from treasury shares upon the exercise of stock options or vesting of RSUs. As of December 31, 2013, approximately 13.7 million shares of our common stock were held in treasury. Our Board of Directors has authorized us to repurchase outstanding shares of our common stock, but we do not expect to repurchase any outstanding shares of our common stock in 2014. See Note 7 – Stock Repurchases, for additional disclosures regarding our stock repurchases.

Operating Leases

Operating Leases. We lease our non-owned facilities under operating lease agreements. Common provisions within our operating lease agreements include:

• renewal options, which can be exercised after the initial lease term;

• rent escalation clauses;

• tenant improvement allowances; and

• rent holidays.

We record the rent expense associated with each operating lease agreement evenly over the term of the lease. The difference between the amount of rent expense recorded and the amount of rent actually paid is recorded as either prepaid or accrued rent, which is included in Other assets or Other liabilities, on our Consolidated Balance Sheets. We recognize a liability for the costs to terminate the lease of a leased facility when we cease using that leased facility.

Income Taxes

Income Taxes. We account for income taxes using the asset and liability method, which requires the recognition of deferred tax assets and liabilities for expected future tax consequences of temporary differences that currently exist between the tax bases and financial reporting bases of our assets and liabilities.

We follow the guidance under ASC 740, “Income Taxes” (“ASC 740”), which prescribes a single, comprehensive model for how a company should recognize, measure, present and disclose in its financial statements uncertain tax positions that the company has taken or expects to take on its tax returns. This guidance requires us to evaluate whether it is more likely than not, based on the technical merits of a tax position, that the benefits resulting from the position will be realized by us.

We record interest and penalties related to unrecognized tax benefits in income tax expense.

New Accounting Guidance

In May 2014, the FASB issued Accounting Standards Update (“ASU”) No. 2014-09, which is included in the Codification under ASC 606, “Revenue Recognition” (“ASC 606”). This guidance requires the recognition of revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration expected in exchange for those goods or services. This guidance will become effective for our interim and annual reporting periods beginning January 1, 2017. We have not completed our evaluation of the impact that this guidance may have on our consolidated financial statements.

In April 2014, the FASB issued ASU No. 2014-08, which is included in the Codification under ASC 205, “Presentation of Financial Statements” (“ASC 205”). This update changes the requirements for reporting discontinued operations and clarifies when disposals of groups of assets qualify for a discontinued operations presentation under ASC 205. This guidance will become effective for our interim and annual reporting periods beginning January 1, 2015, and will be applied to any transactions that meet those requirements beginning January 1, 2015.

In July 2013, the FASB issued ASU No. 2013-11, which is included in the Codification under ASC 740. This update provides guidance on the presentation of unrecognized tax benefits when net operating loss carryforwards, similar tax losses or tax credit carryforwards exist. This guidance became effective for our interim and annual reporting periods beginning January 1, 2014. The adoption of this guidance did not have a material impact on our consolidated financial statements.

In February 2013, the FASB issued ASU No. 2013-02, which is included in the Codification under ASC 220, “Other Comprehensive Income” (“ASC 220”). This update requires an entity to report the effect, by component, of significant reclassifications out of accumulated other comprehensive income on the respective line items in net income. This guidance was effective for our interim and annual reporting periods beginning January 1, 2013. The adoption of this guidance requires us to provide additional disclosures regarding the amounts reclassified out of accumulated other comprehensive income during a reporting period. We have included these disclosures in the footnotes to our consolidated financial statements. The adoption of this guidance did not have a material impact on our consolidated financial statements

In October 2012, the FASB issued ASU No. 2012-04, which makes technical corrections, clarifications and limited-scope improvements to various topics throughout the Codification. The amendments in this ASU that do not have transition guidance were effective upon issuance, and the amendments that are subject to transition guidance were effective for our interim and annual reporting periods beginning January 1, 2013. The adoption of this guidance did not have a material impact on our consolidated financial statements.

In July 2012, the FASB issued ASU No. 2012-02, which is included in the Codification under ASC 350, “Intangibles – Goodwill and Other” (“ASC 350”). This update allows an entity to first assess qualitative factors to determine whether it must perform a quantitative impairment test. An entity would be required to calculate the fair value of an indefinite-lived intangible asset, if the entity determines, based on a qualitative assessment, that it is more likely than not that the indefinite-lived intangible asset is impaired. This guidance was effective for impairment tests performed for our interim and annual reporting periods beginning January 1, 2013. The adoption of this guidance did not have a material impact on our consolidated financial statements.

In December 2011, the FASB issued ASU No. 2011-11, which is included in the Codification under ASC 210, “Balance Sheet” (“ASC 210”). This update provides for enhanced disclosures to help users of financial statements evaluate the effect or potential effect of netting arrangements on an entity’s financial position. In January 2013, the FASB issued ASU No. 2013-01, which clarified the scope of the disclosures required under ASU No. 2011-11. Both of these updates were effective for our interim and annual reporting periods beginning January 1, 2013. The adoption of this guidance did not have a material impact on our consolidated financial statements.

XML

Commitments and Contingencies - Future Minimum Rental Payments (Detail) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2013
Commitments and Contingencies Disclosure [Abstract]
2014	$ 44,714
2015	38,582
2016	27,939
2017	19,084
2018	13,282
2019 and thereafter	12,446
Operating leases, future minimum payments due, total	$ 156,047

XML

Equity Compensation Plans - Stock-Based Compensation Expense and Related Income Tax Benefit (Detail) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]
Stock-based compensation expense	$ 11,638	$ 16,658	$ 17,074
Income tax (benefit)	$ (4,481)	$ (6,414)	$ (6,574)

XML

Business and Significant Accounting Policies - Schedule of Property Plant and Equipment Estimated Useful Lives (Detail)	12 Months Ended
	Dec. 31, 2013
Furniture and equipment [Member] | Minimum [Member]
Property Plant and Equipment Estimated Useful Lives [Line Items]
Property and equipment, estimated useful Life	3 years
Furniture and equipment [Member] | Maximum [Member]
Property Plant and Equipment Estimated Useful Lives [Line Items]
Property and equipment, estimated useful Life	10 years
Leasehold, building and land improvements [Member] | Minimum [Member]
Property Plant and Equipment Estimated Useful Lives [Line Items]
Property and equipment, estimated useful Life	3 years
Leasehold, building and land improvements [Member] | Maximum [Member]
Property Plant and Equipment Estimated Useful Lives [Line Items]
Property and equipment, estimated useful Life	14 years
Buildings [Member] | Minimum [Member]
Property Plant and Equipment Estimated Useful Lives [Line Items]
Property and equipment, estimated useful Life	20 years
Buildings [Member] | Maximum [Member]
Property Plant and Equipment Estimated Useful Lives [Line Items]
Property and equipment, estimated useful Life	40 years

XML

Revision of 2011 and 2012 Financial Statements (Tables)

12 Months Ended

Dec. 31, 2013

Text Block [Abstract]

Effect of Revisions on Affected Line Items on Consolidated Balance Sheet

The following table sets forth the effect of the revisions on the affected line items on our Consolidated Balance Sheet as of the date indicated.

	As of December 31, 2012
	As Previously Reported		Revisions			As Revised
Balance Sheet Data:
Cash and cash equivalents	$	246,342	$	(2,877	)	$	243,465
Restricted cash		601		2,877			3,478
Accounts receivable, net		77,313		1,615			78,928
Deferred income taxes (current)		44,547		0			44,547
Total current assets		384,965		1,615			386,580
Deferred income taxes		56,112		1,359			57,471
Total assets		672,230		2,974			675,204
Other current liabilities		86,722		20,074			106,796
Total current liabilities		306,949		20,074			327,023
Other liabilities		98,327		(15,911	)		82,416
Total liabilities		545,276		4,163			549,439
Capital surplus		206,703		(9,590	)		197,113
Retained earnings		959,072		8,401			967,473
Total shareholders’ equity		126,954		(1,189	)		125,765
Total liabilities and shareholders’ equity		672,230		2,974			675,204

Effect of Revisions on Affected Line Items on Consolidated Statement of Income

The following table sets forth the effect of the revisions and reclassifications on the affected line items in our Consolidated Statement of Income for the year ended December 31, 2012.

	Year Ended December 31, 2012
	As Previously Reported		Revisions			Reclassifications			As Revised
Statement of Income Data:
Revenue	$	1,287,209	$	(576	)	$	0		$	1,286,633
Cost of educational services		539,223		0			(873	)		538,350
Student services and administrative expenses		422,345		(21,489	)		0			400,856
Settlement cost		21,750		0			(21,750	)		0
Asset impairment		0		0			15,166			15,166
Legal and other investigation costs		0		0			873			873
Loss related to private student loan programs		71,102		0			(71,102	)		0
Loss related to loan program guarantees		0		23,339			77,686			101,025
Total costs and expenses		1,054,420		1,850			0			1,056,270
Operating income		232,789		(2,426	)		0			230,363
Income before provision for income taxes		230,414		(2,426	)		0			227,988
Provision for income taxes		89,949		(931	)		0			89,018
Net income		140,465		(1,495	)		0			138,970
Earnings per share:
Basic	$	5.88							$	5.82
Diluted	$	5.85							$	5.79

The following table sets forth the effect of the revisions on the affected line items in our Consolidated Statement of Income for the year ended December 31, 2011.

	Year Ended December 31, 2011
	As Previously Reported		Revisions			As Revised
Statement of Income Data:
Revenue	$	1,499,949	$	(28	)	$	1,499,977
Cost of educational services		553,065		0			553,065
Student services and administrative expenses		439,808		(25,652	)		414,156
Loss related to loan program guarantees		0		23,500			23,500
Total costs and expenses		992,873		(2,152	)		990,721
Operating income		507,076		2,180			509,256
Income before provision for income taxes		508,153		2,180			510,333
Provision for income taxes		200,401		846			201,247
Net income		307,752		1,334			309,086
Earnings per share:
Basic	$	11.22				$	11.27
Diluted	$	11.13				$	11.18

Effect of Revisions on Affected Line Items on Consolidated Statement of Comprehensive Income

The following table sets forth the effect of the revisions on the affected line items in our Consolidated Statement of Comprehensive Income for the year ended December 31, 2012.

	Year Ended December 31, 2012
	As Previously Reported		Revisions			As Revised
Statement of Comprehensive Income Data:
Net income	$	140,465	$	(1,495	)	$	138,970
Comprehensive income		142,014		(1,495	)		140,519

The following table sets forth the effect of the revisions on the affected line items in our Consolidated Statement of Comprehensive Income for the year ended December 31, 2011.

	Year Ended December 31, 2011
	As Previously Reported		Revisions		As Revised
Statement of Comprehensive Income Data:
Net income	$	307,752	$	1,334	$	309,086
Comprehensive income		302,782		1,334		304,116

Effect of Revisions on Affected Line Items on Condensed Consolidated Statement of Cash Flows

The following table sets forth the effect of the revisions on the affected line items in our Consolidated Statement of Cash Flows for the year ended December 31, 2012.

	Year Ended December 31, 2012
	As Previously Reported			Revisions			As Revised
Statement of Cash Flows Data:
Net income	$	140,465		$	(1,495	)	$	138,970
Provision for doubtful accounts		78,307			(21,489	)		56,818
Deferred income taxes		(58,640	)		(1,359	)		(59,999	)
Restricted cash		1,527			2,267			3,794
Accounts receivable		(107,514	)		20,376			(87,138	)
Other operating assets and liabilities		68,890			3,967			72,857
Net cash flows from operating activities		105,354			2,267			107,621

The following table sets forth the effect of the revisions on the affected line items in our Consolidated Statement of Cash Flows for the year ended December 31, 2011.

	Year Ended December 31, 2011
	As Previously Reported			Revisions			As Revised
Statement of Cash Flows Data:
Net income	$	307,752		$	1,334		$	309,086
Provision for doubtful accounts		61,308			(25,653	)		35,655
Deferred income taxes		(8,991	)		0			(8,991	)
Restricted cash		(1,873	)		931			(942	)
Accounts receivable		(40,477	)		23,473			(17,004	)
Other operating assets and liabilities		35,118			846			35,964
Net cash flows from operating activities		387,832			931			388,763

XML

Acquisitions (Tables)

12 Months Ended

Dec. 31, 2013

Cable Holdings [Member]

Summary of Estimated Fair Values Allocated to Major Classes of Assets Acquired and Liabilities Assumed

The following table sets forth the estimated fair values allocated to the major classes of assets acquired and liabilities assumed in the Cable Holdings acquisition as of the acquisition date:

	Assets Acquired		Liabilities Assumed
Accounts receivable and other current assets	$	1,110
Furniture and equipment		480
Identifiable intangible assets		2,390
Goodwill		3,958
Accounts payable and other liabilities			$	788

Ascolta [Member]

Summary of Estimated Fair Values Allocated to Major Classes of Assets Acquired and Liabilities Assumed

The following table sets forth the estimated fair values allocated to the major classes of assets acquired and liabilities assumed in the Ascolta business acquisition as of the acquisition date:

	Assets Acquired		Liabilities Assumed
Accounts receivable and other current assets	$	849
Furniture and equipment		370
Identifiable intangible assets		1,670
Goodwill		3,332
Other current liabilities			$	1,035

XML

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (USD $) In Thousands	Total	Common Stock [Member]	Capital Surplus [Member]	Retained Earnings [Member]	Accumulated Other Comprehensive Income/(Loss) [Member]	Common Stock in Treasury [Member]
Beginning Balance at Dec. 31, 2010	$ 127,042	$ 371	$ 170,966	$ 526,619	$ (4,509)	$ (566,405)
Beginning Balance (in shares) at Dec. 31, 2010		37,069				(7,076)
Net income (loss)	309,086			309,086
Other comprehensive income (loss), net of income tax	(4,970)				(4,970)
Equity award vesting and exercises	5,599		(2,397)	(2,359)		10,355
Equity award vesting and exercises (in shares)						155
Tax benefit from equity awards	1,190		1,190
Stock-based compensation	14,448		14,448
Common shares repurchased	(282,701)					(282,701)
Common shares repurchased (in shares)						(4,040)
Issuance of shares for Directors' compensation	30			1		29
Issuance of shares for Directors' compensation (in shares)						1
Shares tendered for taxes	(619)					(619)
Shares tendered for taxes (in shares)						(9)
Ending Balance at Dec. 31, 2011	169,105	371	184,207	833,347	(9,479)	(839,341)
Ending Balance (in shares) at Dec. 31, 2011		37,069				(10,969)
Net income (loss)	138,970			138,970
Other comprehensive income (loss), net of income tax	1,549				1,549
Equity award vesting and exercises	8,345		(4,224)	(4,843)		17,412
Equity award vesting and exercises (in shares)						272
Tax benefit from equity awards	918		918
Stock-based compensation	16,212		16,212
Common shares repurchased	(207,918)					(207,918)
Common shares repurchased (in shares)	(3,025,700)					(3,026)
Issuance of shares for Directors' compensation	37			(1)		38
Issuance of shares for Directors' compensation (in shares)						1
Shares tendered for taxes	(1,453)					(1,453)
Shares tendered for taxes (in shares)						(22)
Ending Balance at Dec. 31, 2012	125,765	371	197,113	967,473	(7,930)	(1,031,262)
Ending Balance (in shares) at Dec. 31, 2012		37,069				(13,744)
Net income (loss)	(27,024)			(27,024)
Other comprehensive income (loss), net of income tax	11,076				11,076
Equity award vesting and exercises	0		(3,297)			3,297
Equity award vesting and exercises (in shares)						68
Tax benefit from equity awards	(5,414)		(5,414)
Stock-based compensation	11,638		11,638
Common shares repurchased	0
Common shares repurchased (in shares)	0
Shares tendered for taxes	(395)					(395)
Shares tendered for taxes (in shares)						(23)
Ending Balance at Dec. 31, 2013	$ 115,646	$ 371	$ 200,040	$ 940,449	$ 3,146	$ (1,028,360)
Ending Balance (in shares) at Dec. 31, 2013		37,069				(13,699)

XML

Fair Value and Credit Risk of Financial Instruments (Tables)

12 Months Ended

Dec. 31, 2013

Fair Value Disclosures [Abstract]

Fair Value Measurement of Financial Assets

The following table sets forth information regarding the recurring fair value measurement of our financial assets as reflected on our Consolidated Balance Sheet as of December 31, 2013:

			Fair Value Measurements at Reporting Date Using
Description	As of December 31, 2013		(Level 1) Quoted Prices in Active Markets for Identical Assets		(Level 2) Significant Other Observable Inputs		(Level 3) Significant Unobservable Inputs
Cash equivalents:
Money market fund	$	214,985	$	214,985	$	0	$	0
Restricted cash:
Money market fund		2,433		2,433		0		0
Other assets:
Money market fund		8,626		8,626		0		0
	$	226,044	$	226,044	$	0	$	0

The following table sets forth information regarding the recurring fair value measurement of our financial assets as reflected on our Consolidated Balance Sheet as of December 31, 2012:

			Fair Value Measurements at Reporting Date Using
Description	As of December 31, 2012		(Level 1) Quoted Prices in Active Markets for Identical Assets		(Level 2) Significant Other Observable Inputs		(Level 3) Significant Unobservable Inputs
Cash equivalents:
Money market fund	$	151,784	$	151,784	$	0	$	0
Restricted cash:
Money market fund		2,877		2,877		0		0
Other assets:
Money market fund		8,622		8,622		0		0
	$	163,283	$	163,283	$	0	$	0

XML

Income Taxes - Difference Detween U.S. Federal Statutory Income Tax Rate and Effective Income Tax Rate as a Percentage of Income (Detail)	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011
Income Tax Disclosure [Abstract]
U.S. federal statutory income tax rate	(35.00%)	35.00%	35.00%
PEAKS Trust rate differential	11.90%	0.00%	0.00%
State income taxes, net of federal benefit	(5.60%)	3.40%	3.90%
Permanent book/tax differences	2.80%	0.90%	0.40%
Other	(1.50%)	(0.30%)	0.10%
Effective income tax rate	(27.40%)	39.00%	39.40%

XML

Income Taxes (Tables)

12 Months Ended

Dec. 31, 2013

Income Tax Disclosure [Abstract]

Components of Provision for Income Taxes

The following table sets forth the components of the provision for income taxes in the periods indicated:

	Year Ended December 31,
	2013			2012			2011
Current income tax expense:
U.S. federal	$	39,279		$	126,585		$	174,264
State and local		4,611			22,004			35,128
Total	$	43,890		$	148,589		$	209,392
Deferred income tax (benefit):
U.S. federal	($	46,345	)	($	51,145	)	($	6,718	)
State and local		(7,757	)		(8,426	)		(1,427	)
Total	($	54,102	)	($	59,571	)	($	8,145	)
Total provision (benefit) for income taxes	($	10,212	)	$	89,018		$	201,247

Components of Deferred Income Tax Assets (Liabilities)

The following table sets forth the components of our deferred income tax assets (liabilities) as of the dates indicated:

	As of December 31,
	2013			2012
Deferral of book costs	($	1,748	)	($	1,810	)
Property and equipment		(1,807	)		(6,416	)
Pension		(10,566	)		(2,712	)
Other		(1,189	)		(2,308	)
Gross deferred tax (liabilities)	($	15,310	)	($	13,246	)
Deferred revenue	$	10,902		$	14,687
Accounts receivable		3,551			6,073
Legal accrual		3,455			2,018
Compensation and benefits		3,316			1,643
Stock-based compensation		20,794			22,680
Operating leases		2,386			735
Legal settlement accrual		0			17,834
Other assets		8,356			18,772
Other contingent liabilities		108,423			30,822
Gross deferred tax assets	$	161,183		$	115,264
Net deferred income tax asset	$	145,873		$	102,018

Difference Between U.S. Federal Statutory Income Tax Rate and Effective Income Tax Rate as a Percentage of Income

The difference between the U.S. federal statutory income tax rate and our effective income tax rate as a percentage of income in the periods indicated is reconciled in the following table:

	Year Ended December 31,
	2013			2012			2011
U.S. federal statutory income tax rate		(35.0	%)		35.0	%		35.0	%
PEAKS Trust rate differential		11.9	%		0	%		0	%
State income taxes, net of federal benefit		(5.6	%)		3.4	%		4.0	%
Other		1.3	%		0.6	%		0.4	%
Effective income tax rate		(27.4	%)		39.0	%		39.4	%

Activity with Respect to Unrecognized Tax Benefits

The following table sets forth the activity with respect to our unrecognized tax benefits in the period indicated:

	Year Ended December 31,
	2013			2012			2011
Balance as of January 1	$	20,690		$	22,050		$	22,888
Increases (decreases) from:
Tax positions taken during a prior period		1,675			195			1,042
Tax positions taken during the current period		870			759			2,434
Settlements with taxing authorities		186			(1,027	)		(2,487	)
Lapse of statute of limitations		(1,130	)		(1,287	)		(1,827	)
Balance as of December 31	$	22,291		$	20,690		$	22,050

XML

Fair Value and Credit Risk of Financial Instruments - Additional Information (Detail) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2013	Feb. 28, 2013	Dec. 31, 2012
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Carrying value of the PEAKS Trust Student Loans	$ 76,479		$ 0
Carrying value of debt	50,000		0
Carrying value senior debt	71,341		0
PEAKS Trust Student Loans [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Carrying value of the PEAKS Trust Student Loans	76,479	104,834	0
Carrying value senior debt	71,341	122,740
(Level 3) Significant Unobservable Inputs [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Estimated fair value of notes receivable	2,500		9,600
Carrying value of notes receivable	2,500		9,600
(Level 3) Significant Unobservable Inputs [Member] | PEAKS Trust Student Loans [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Carrying value of the PEAKS Trust Student Loans	84,209
The estimated fair value of the PEAKS Trust Student Loans	99,100
Carrying value senior debt	229,224
Estimated fair value senior debt	239,400
(Level 2) Significant Other Observable Inputs [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Estimated fair value of debt	50,000		140,000
Carrying value of debt	$ 50,000		$ 140,000

XML

PEAKS Trust Student Loans - Additional Information (Detail) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2013	Feb. 28, 2013	Dec. 31, 2012
Accounts, Notes, Loans and Financing Receivable [Line Items]
Allowance for Loan losses	$ 0	$ 0	$ 0
Forbearance Rate	25.00%
PEAKS Trust Student Loans [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Allowance for Loan losses	29,349	0
Future payments on loans		487,800
Non accretable discount		274,700
Loans, Outstanding amount	279,400
Loans, carrying amount	84,209
PEAKS Trust Student Loans [Member] | Analogy [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Future payments on loans		213,600
Non accretable discount		$ 94,600

XML

CONSOLIDATED BALANCE SHEETS (unaudited) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2013	Dec. 31, 2012
Current assets:
Cash and cash equivalents	$ 215,771	$ 243,465
Restricted cash	5,636	3,478
Accounts receivable, less allowance for doubtful accounts of $9,174 and $15,663	99,530	78,928
PEAKS Trust student loans, less allowance for loan losses of $0 and $0	7,730	0
Deferred income taxes	77,549	44,547
Prepaid expenses and other current assets	28,400	16,162
Total current assets	434,616	386,580
Property and equipment, net	168,509	189,890
PEAKS Trust student loans, excluding current portion, less allowance for loan losses of $29,349 and $0	76,479	0
Deferred income taxes	68,324	57,471
Other assets	58,923	41,263
Total assets	806,851	675,204
Current liabilities:
Current portion of long-term debt	50,000	0
Current portion of PEAKS Trust senior debt	157,883	0
Accounts payable	58,021	63,304
Accrued compensation and benefits	18,107	21,023
Other current liabilities	42,136	106,796
Deferred revenue	147,630	135,900
Total current liabilities	473,777	327,023
Long-term debt	0	140,000
PEAKS Trust senior debt, excluding current portion	71,341	0
Other liabilities	146,087	82,416
Total	691,205	549,439
Commitments and contingent liabilities (Note 16)
Shareholders' equity:
Preferred stock, $.01 par value, 5,000,000 shares authorized, none issued	0	0
Common stock, $.01 par value, 300,000,000 shares authorized, 37,068,904 issued	371	371
Capital surplus	200,040	197,113
Retained earnings	940,449	967,473
Accumulated other comprehensive income (loss)	3,146	(7,930)
Treasury stock, 13,698,716 and 13,744,395 shares, at cost	(1,028,360)	(1,031,262)
Total shareholders' equity	115,646	125,765
Total liabilities and shareholders' equity	$ 806,851	$ 675,204

XML

Revision of 2011 and 2012 Financial Statements - Additional Information (Detail) (USD $) In Thousands, unless otherwise specified	0 Months Ended
	Dec. 31, 2010	Dec. 31, 2012	Dec. 31, 2011
Increase in retained earnings	$ 2,969	$ 5,366
Decrease in capital surplus	2,969	5,366
Increase in retained earnings related to recognition of revenue related to students withdrawal from program			306
Decrease in retained earnings related to recognition of revenue related to students withdrawal from program	1,028
Revisions [Member]
Increase in retained earnings	1,941		5,672
Decrease in capital surplus	2,969		5,366
Increase in retained earnings related to recognition of revenue related to students withdrawal from program			306
Decrease in retained earnings related to recognition of revenue related to students withdrawal from program	$ 1,028

XML

Commitments and Contingencies - Additional Information (Detail) (USD $) In Thousands, unless otherwise specified	0 Months Ended		12 Months Ended
	Jan. 31, 2013	Mar. 26, 2012	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011
Loss Contingencies [Line Items]
Face amount of surety bonds			$ 19,300
Issued letters of credit to workers compensation insurers			2,246
Amount claimed as offset against note receivable			9,091
Number of years represented losses realized			10 years
Payment under settlement agreement	46,000
Life of private education loan made under RSAs			10 years
Range of possible losses less than amount accrued			11,000
Range of possible losses greater than portion accrued			28,000
Litigation Settlement award		395
Expiration period of operating lease obligation			10 years
Rent expense under operating leases			53,212	50,817	47,833
Expected to Recover guarantee Amount				12,342
Guarantee payment expected net of accrued discount				5,674
Additional payments expected in 2018			75,194
Discount on guarantee regular payments and recoveries			9,015
Collateral maintained with bank for education loan			8,600	8,600
Increase in collateral maintained in restricted bank account			2,600
Offset amounts relating to guarantee obligations			9,091
Amounts relating to discharge payments			6,786
Recoveries from charged-off loans			574
Credit facility outstanding, amount			8,200
Payments on Behalf of Borrowers			11,499	2,762
Payable in 2018 through 2027 [Member]
Loss Contingencies [Line Items]
Estimated regular payment made			97,400
Payable 2023 through 2027 [Member]
Loss Contingencies [Line Items]
Estimated regular payment made			16,600
2009 Entity [Member]
Loss Contingencies [Line Items]
Offset amounts relating to guarantee obligations			9,091
Recoveries from charged-off loans			500
Payments on Behalf of Borrowers			8,600
Minimum [Member]
Loss Contingencies [Line Items]
Operating leases renewal option period, years			1 year
Maximum allowable percentage of Title IV programs			75.00%
Minimum [Member] | Payable 2018 through 2022 [Member]
Loss Contingencies [Line Items]
Estimated regular payment made			15,100
Maximum [Member]
Loss Contingencies [Line Items]
Operating leases renewal option period, years			5 years
Maximum allowable percentage of Title IV programs			90.00%
Maximum [Member] | Payable 2018 through 2022 [Member]
Loss Contingencies [Line Items]
Estimated regular payment made			16,400
Education Loan Under 2009 Loan Program [Member]
Loss Contingencies [Line Items]
Principal amount for private education loans			$ 141,000
Obligation repayment term (in Years)			10 years

XML

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (unaudited) (Parenthetical) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011
Statement of Comprehensive Income [Abstract]
Net actuarial pension (loss) gain, tax	$ 6,811	$ 242	$ 3,709
Actuarial pension loss amortization, tax	790	1,062	704
Prior service cost (credit) amortization, tax	604	607	607
Pension settlement (loss), tax	17	309	470
Unrealized gains (losses) on available-for-sale securities, tax	$ 0	$ 0	$ 0

XML

Employee Benefit Plans - Plan Assets and Projected Benefit Obligations Recognized in Other Comprehensive (Income) Loss (Detail) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011
Compensation and Retirement Disclosure [Abstract]
Net actuarial (gain) loss	$ (17,566)	$ (621)	$ 9,504
Amortization of net actuarial loss	(2,037)	(2,718)	(1,803)
Prior service cost (credit)	0	0	0
Amortization of prior service cost (credit)	1,555	1,555	1,555
Settlement	(42)	(792)	(1,204)
Other comprehensive (income) loss	(18,090)	(2,576)	8,052
Total recognized in net periodic pension benefit (income) and other comprehensive (income) loss	$ (20,154)	$ (2,790)	$ 7,153

XML

Equity Compensation Plans - Assumptions used to Estimate Grant Date Fair Value of Stock Options (Detail)	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]
Risk-free interest rates	0.70%	0.70%	1.80%
Expected lives (in years)	4 years 7 months 6 days	4 years 6 months	4 years 8 months 12 days
Volatility	60.00%	51.00%	48.00%
Dividend yield

XML

Commitments and Contingencies - Activity with Respect to Claims and Contingencies (Parenthetical) (Detail) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012
Schedule of Claims and Contingencies [Line Items]
Payment recoveries	$ 103	$ 234
PEAKS Program Guarantee [Member]
Schedule of Claims and Contingencies [Line Items]
Estimated recoveries	$ 1,408	$ 6,668

XML

Earnings (Loss) Per Common Share (Tables)

12 Months Ended

Dec. 31, 2013

Earnings Per Share [Abstract]

Historical Net Income and Weighted Average Number of Shares of Common Stock Outstanding

This data is based on historical net income (loss) and the weighted average number of shares of our common stock outstanding during each period as set forth in the following table:

	Year Ended December 31,
	2013		2012		2011
	(In thousands)
Shares:
Weighted average number of shares of common stock outstanding		23,412		23,880		27,429
Shares assumed issued (less shares assumed purchased for treasury) for stock-based compensation		Not Applicable		119		226
Outstanding shares for diluted earnings (loss) per share calculation		23,412		23,999		27,655

XML

Variable Interest Entities - Additional Information (Detail) (USD $) In Thousands, unless otherwise specified	3 Months Ended								12 Months Ended			3 Months Ended	12 Months Ended		1 Months Ended	12 Months Ended	0 Months Ended	3 Months Ended	12 Months Ended	0 Months Ended	12 Months Ended		1 Months Ended	12 Months Ended
	Dec. 31, 2013	Sep. 30, 2013	Jun. 30, 2013	Mar. 31, 2013	Dec. 31, 2012	Sep. 30, 2012	Jun. 30, 2012	Mar. 31, 2012	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2012 2009 RSA [Member]	Dec. 31, 2013 2009 RSA [Member] Installment	Dec. 31, 2012 2009 RSA [Member]	Apr. 30, 2013 PEAKS Guarantee [Member]	Dec. 31, 2012 PEAKS Guarantee [Member]	Oct. 09, 2014 PEAKS Guarantee [Member] Subsequent Event [Member]	Sep. 30, 2014 PEAKS Guarantee [Member] Subsequent Event [Member]	Dec. 31, 2013 PEAKS Guarantee [Member] 2014 Payment [Member]	Feb. 28, 2013 PEAKS Trust Student Loans [Member]	Dec. 31, 2013 PEAKS Trust Student Loans [Member]	Dec. 31, 2012 PEAKS Trust Student Loans [Member]	Jan. 31, 2014 PEAKS Trust Student Loans [Member] Subsequent Event [Member]	Dec. 31, 2013 PEAKS Trust Student Loans [Member] 2014 Payment [Member]	Dec. 31, 2013 2009 Entity [Member]
Variable Interest Entity [Line Items]
Imputed interest rate										9.00%
Subordinated Note, maturity date									2026-03
Subordinated Notes					$ 73,000					$ 73,000
Impairment charge					15,166	0	0	0	0	15,166	0	4,900										10,300
Carrying value of Revolving note	76,479				0				76,479	0		2,900	2,500	2,900						104,834	76,479	0
Payments under PEAKS guarantee															60,340	12,342	50,000	51,700	159,500
Amount of liabilities exceeding fair value assets																				112,748
Reduction amount on recognized as loss on offset																				39,500
(Loss) on consolidation of PEAKS Trust	0	0	0	(73,248)					(73,248)	0	0										73,248
Payments on Behalf of Borrowers									11,499	2,762													1,832		8,600
Prepayment of Senior debt																								40,000
Number of monthly payments													10
Discount rate													10.00%
Offset amounts relating to guarantee obligations									9,091																9,091
Amounts relating to discharge payments									6,786
Recoveries from Charged-Off Loans									103	234			(103)	(234)											574
Advances to 2009 Entity									0	0
Revolving note, amount owned to company	8,200				8,300				8,200	8,300
Carrying value of subordinated note and revolving note prior to impairment charge													$ 7,800

XML

Income Taxes

12 Months Ended

Dec. 31, 2013

Income Tax Disclosure [Abstract]

Income Taxes

14. Income Taxes

The following table sets forth the components of the provision for income taxes in the periods indicated:

	Year Ended December 31,
	2013			2012			2011
Current income tax expense:
U.S. federal	$	39,279		$	126,585		$	174,264
State and local		4,611			22,004			35,128
Total	$	43,890		$	148,589		$	209,392
Deferred income tax (benefit):
U.S. federal	($	46,345	)	($	51,145	)	($	6,718	)
State and local		(7,757	)		(8,426	)		(1,427	)
Total	($	54,102	)	($	59,571	)	($	8,145	)
Total provision (benefit) for income taxes	($	10,212	)	$	89,018		$	201,247

We recognized approximately $298 of state income tax benefit in the year ended December 31, 2013, as a result of state operating losses.

We do not include the PEAKS Trust in our consolidated income tax returns because the PEAKS Trust is a tax-exempt entity. Therefore, we did not recognize income tax expense or benefit for the PEAKS Trust in the provision for income taxes included in our Consolidated Statement of Income for the year ended December 31, 2013. The effect of the exclusion of the PEAKS Trust from our income tax provision is shown in the reconciliation of our effective income tax rate as a percentage of income shown below.

The following table sets forth the components of our deferred income tax assets (liabilities) as of the dates indicated:

	As of December 31,
	2013			2012
Deferral of book costs	($	1,748	)	($	1,810	)
Property and equipment		(1,807	)		(6,416	)
Pension		(10,566	)		(2,712	)
Other		(1,189	)		(2,308	)
Gross deferred tax (liabilities)	($	15,310	)	($	13,246	)
Deferred revenue	$	10,902		$	14,687
Accounts receivable		3,551			6,073
Legal accrual		3,455			2,018
Compensation and benefits		3,316			1,643
Stock-based compensation		20,794			22,680
Operating leases		2,386			735
Legal settlement accrual		0			17,834
Other assets		8,356			18,772
Other contingent liabilities		108,423			30,822
Gross deferred tax assets	$	161,183		$	115,264
Net deferred income tax asset	$	145,873		$	102,018

The difference between the U.S. federal statutory income tax rate and our effective income tax rate as a percentage of income in the periods indicated is reconciled in the following table:

	Year Ended December 31,
	2013			2012			2011
U.S. federal statutory income tax rate		(35.0	%)		35.0	%		35.0	%
PEAKS Trust rate differential		11.9	%		0	%		0	%
State income taxes, net of federal benefit		(5.6	%)		3.4	%		3.9	%
Permanent book/tax differences		2.8	%		0.9	%		0.4	%
Other		(1.5	%)		(0.3	%)		0.1	%
Effective income tax rate		(27.4	%)		39.0	%		39.4	%

The following table sets forth the activity with respect to our unrecognized tax benefits in the period indicated:

	Year Ended December 31,
	2013			2012			2011
Balance as of January 1	$	20,690		$	22,050		$	22,888
Increases (decreases) from:
Tax positions taken during a prior period		1,675			195			1,042
Tax positions taken during the current period		870			759			2,434
Settlements with taxing authorities		186			(1,027	)		(2,487	)
Lapse of statute of limitations		(1,130	)		(1,287	)		(1,827	)
Balance as of December 31	$	22,291		$	20,690		$	22,050

The amount of unrecognized tax benefits that, if recognized, would have affected our effective tax rate as of December 31, 2013 was $10,575. We do not expect the amount of our unrecognized tax benefits to significantly increase or decrease during the next 12 months. The amount of interest and penalties related to unrecognized tax benefits accrued on our Consolidated Balance Sheets was $6,371 as of December 31, 2013 and $5,699 as of December 31, 2012. In each of the years ended December 31, 2013, 2012 and 2011, the amount of interest expense and penalties related to our unrecognized tax benefits that we recognized in our Consolidated Statements of Income was not material.

We file income tax returns in the United States (federal) and in various state and local jurisdictions. As of December 31, 2013, we were no longer subject to federal, state or local income tax examinations for tax years prior to 2010, except in eleven states where we are still subject to income tax examinations for tax year 2009 and one state where we are still subject to income tax examination for the tax years 2005 through 2008.

XML

Variable Interest Entities (Tables)

12 Months Ended

Dec. 31, 2013

Text Block [Abstract]

Schedule of Carrying Value of Assets and Liabilities of PEAKS Trust

The following table sets forth the fair value of the assets and liabilities of the PEAKS Trust as of February 28, 2013 that were included on our Consolidated Balance Sheet on that date:

	As of February 28, 2013
	Assets		Liabilities
Restricted cash	$	1,703
PEAKS Trust student loans, less allowance for loan losses of $0		7,282
PEAKS Trust student loans, excluding current portion, less allowance for loan losses of $0		104,834
Current portion of PEAKS Trust senior debt			$	103,356
Other current liabilities				471
PEAKS Trust senior debt, excluding current portion				122,740
Total	$	113,819	$	226,567

The following table sets forth the carrying values of assets and liabilities of the PEAKS Trust that were included on our Consolidated Balance Sheet as of December 31, 2013:

	As of December 31, 2013
	Assets		Liabilities
Restricted cash	$	2,593
PEAKS Trust student loans, less allowance for loan losses of $0		7,730
PEAKS Trust student loans, excluding current portion, less allowance for loan losses of $29,349		76,479
Current portion of PEAKS Trust senior debt			$	157,883
Other current liabilities				697
PEAKS Trust senior debt, excluding current portion				71,341
Total	$	86,802	$	229,921

Schedule of Carrying Value of Assets and Liabilities Eliminated from Financial Statement

The following table sets forth the carrying value of the assets and liabilities related to the PEAKS Program as of February 28, 2013 that we eliminated from our consolidated balance sheet when we consolidated the PEAKS Trust in our consolidated financial statements, and the line items within which those assets and liabilities were included:

	As of February 28, 2013
	Assets		Liabilities
Other assets	$	6,614
Other current liabilities			$	3,060
Other liabilities				43,054
Total	$	6,614	$	46,114

Schedule of Revenue and Expenses of PEAKS Trust

The following table sets forth the revenue and expenses of the PEAKS Trust, excluding the loss on consolidation of the PEAKS Trust, that were included in our Consolidated Statement of Income in the year ended December 31, 2013:

	Year Ended December 31, 2013
Revenue	$	12,996
Student services and administrative expenses		5,288
Provision for PEAKS Trust student loan losses		29,349
Interest expense		21,288
Income (loss) before provision for income taxes	$	(42,929	)

Aggregate Amount of Guarantee and Other Payments

The following table sets forth the guarantee payments and Payments on Behalf of Borrowers that were made related to the PEAKS Program in the periods indicated:

Type of Payment	January 1, 2013 Through February 28, 2013 (1)		March 1, 2013 Through December 31, 2013 (1)		Total Year Ended December 31, 2013		Year Ended December 31, 2012
PEAKS Guarantee	$	854	$	1,559	$	2,413	$	12,342
Payments on Behalf of Borrowers		532		10,967		11,499		2,762
Total	$	1,386	$	12,526	$	13,912	$	15,104

Schedule of Payments Made to Entity Related to Guarantee Obligations

The following table sets forth the payments that we made to the 2009 Entity related to our guarantee obligations under the 2009 RSA and the amount of recoveries from charged-off loans paid to us by the 2009 Entity in the periods indicated:

	Year Ended December 31,
	2013			2012
Regular Payments	$	1,791		$	1,990
Discharge Payments		912			0
Recoveries from Charged-Off Loans		(103	)		(234	)
	$	2,600		$	1,756

XML

Commitments and Contingencies - Activity with Respect to Claims and Contingencies (Detail) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012
Schedule of Claims and Contingencies [Line Items]
Claims and contingencies, beginning balance	$ 126,978	$ 36,028
Payments, net	(2,600)	(1,756)
Payments on Behalf of Borrowers	(11,499)	(2,762)
Elimination of intercompany transactions	11,118	0
Additional accruals	(46,114)	0
Claims and contingencies, ending balance	125,880	126,978
PEAKS Guarantee [Member]
Schedule of Claims and Contingencies [Line Items]
Additional accruals	0	55,935
2009 RSA [Member]
Schedule of Claims and Contingencies [Line Items]
Claims and contingencies, beginning balance	28,232
Additional accruals	90,964	23,340
Claims and contingencies, ending balance	116,923	28,232
2007 RSA [Member]
Schedule of Claims and Contingencies [Line Items]
Claims and contingencies, beginning balance	46,000
Payments, net	(46,000)	0
Additional accruals	0	21,750
Claims and contingencies, ending balance	0	46,000
Other claims and contingencies [Member]
Schedule of Claims and Contingencies [Line Items]
Claims and contingencies, beginning balance	5,246
Additional accruals	4,038	117
Claims and contingencies, ending balance	8,957	5,246
PEAKS Program Guarantee [Member]
Schedule of Claims and Contingencies [Line Items]
Claims and contingencies, beginning balance	47,500
Payments, net	(1,005)	(5,674)
Claims and contingencies, ending balance	$ 0	$ 47,500

XML

Commitments and Contingencies

12 Months Ended

Dec. 31, 2013

Commitments and Contingencies Disclosure [Abstract]

Commitments and Contingencies

16. Commitments and Contingencies

As part of our normal operations, one of our insurers issues surety bonds for us that are required by various education authorities that regulate us. We are obligated to reimburse our insurer for any of those surety bonds that are paid by the insurer. As of December 31, 2013, the total face amount of those surety bonds was approximately $19,300. As of December 31, 2013, we also had issued approximately $2,246 of letters of credit to our workers’ compensation insurers.

We are also subject to various claims and contingencies, including those related to litigation, government investigations, business transactions, guarantee arrangements and employee-related matters, among others. We record a liability for those claims and contingencies, if it is probable that a loss will result and the amount of the loss can be reasonably estimated. Although we believe that our estimates related to any claims and contingencies are reasonable, we cannot make any assurances with regard to the accuracy of our estimates, and actual results could differ materially.

The following table sets forth the components of our recorded liability related to our claims and contingencies and where the amounts were included on our Consolidated Balance Sheets as of the dates indicated:

	As of December 31,
	2013		2012
PEAKS Guarantee (1)	$	0	$	47,500
2009 RSA		116,923		28,232
2007 RSA(2)		0		46,000
Other		8,957		5,246
Total	$	125,880	$	126,978
Other current liabilities	$	25,893	$	85,655
Other liabilities		99,987		41,323
Total	$	125,880	$	126,978

(1) We consolidated the PEAKS Trust in our consolidated financial statements as of February 28, 2013. See Note 10 – Variable Interest Entities, for a further discussion of the Consolidation.

(2) As defined below

Other current liabilities primarily represented our estimate of the loss that we believed we would realize during the 12- month period following the dates indicated. As of December 31, 2013, Other current liabilities included $9,091 that we claimed as an offset against amounts owed to us under the Revolving Note. See “ – Guarantees,” for a further discussion of the amounts we claimed as offsets under the Revolving Note. The amounts included in Other liabilities primarily related to our estimated contingent liabilities for the 2009 RSA as of December 31, 2013 and the PEAKS Guarantee and 2009 RSA as of December 31, 2012, and represented our estimate of the loss that we believed we would realize after the 12-month period following the dates indicated and over a period that could exceed 10 years.

The following table sets forth the activity with respect to our recorded liability related to our claims and contingencies in the periods indicated:

	Year Ended December 31,
	2013			2012
Balance as of January 1	$	126,978		$	36,028
Increases (decreases) from:
Additional accruals:
PEAKS Guarantee (1)		0			55,935
2009 RSA (2)		90,964			23,340
2007 RSA		0			21,750
Other		4,038			117
Payments, net of recoveries of $103 and $234 (3)		(2,600	)		(1,756	)
Payments under PEAKS Guarantee, net of estimated recoveries of $1,408 and $6,668		(1,005	)		(5,674	)
Payments on Behalf of Borrowers		(11,499	)		(2,762	)
Settlement payment – 2007 RSA		(46,000	)		0
Elimination of intercompany transactions (4)		11,118			0
Elimination of PEAKS Guarantee accrual (5)		(46,114	)		0
Balance as of December 31	$	125,880		$	126,978

(1) Our guarantee obligations under the PEAKS Program remain in effect until the PEAKS Senior Debt and the PEAKS Trust’s fees and expenses are paid in full. At such time, we will be entitled to repayment by the PEAKS Trust of the amount of payments we made under the PEAKS Guarantee (which do not include Payments on Behalf of Borrowers) to the extent that funds remain in the PEAKS Trust after the PEAKS Senior Debt and all fees and expenses of the PEAKS Trust have been paid in full. The PEAKS Senior Debt matures in January 2020 and, therefore, we do not expect to begin receiving any repayment of amounts that we previously paid under the PEAKS Guarantee until February 2020. The accrual related to the PEAKS Guarantee as of December 31, 2012 was recorded net of estimated recoveries, taking into consideration the present value of the estimated recoveries.

(2) This amount represents a change in our accounting estimate for the amount of our guarantee obligations under the 2009 RSA. We revised our estimate for the 2009 RSA based on an enhanced default rate methodology and more recent performance data that we obtained in the three months ended December 31, 2013. The primary enhancements and performance data included: (i) an adjustment to the default estimates for student borrowers, as a result of recently obtained actual default data for similarly-situated student borrowers; (ii) an adjustment to the default rate expectations, due to declines in repayment performance; (iii) our ability to make Discharge Payments; and (iv) a lower expectation for collections on defaulted loans as a result of the performance to date of collections.

(3) Includes payments, net of recoveries, under the 2009 RSA.

(4) We consolidated the PEAKS Trust in our consolidated financial statements as of February 28, 2013 and, as a result, we have eliminated from our consolidated financial statements the amount of payments under the PEAKS Guarantee and Payments on Behalf of Borrowers that we made following the Consolidation. See Note 10 – Variable Interest Entities, for a further discussion of the Consolidation.

(5) As a result of the Consolidation, we have eliminated from our consolidated financial statements the contingent liability related to the PEAKS Guarantee that we had previously recorded.

We had guaranteed the repayment of private education loans made by a lender to our students in 2007 and early 2008 (the “2007 RSA”) that the lender charged off above a certain percentage of the total dollar volume of private education loans made under the 2007 RSA. In January 2013, we paid $46,000 in a settlement to absolve us from any further obligations with respect to our guarantee obligations under the 2007 RSA, which amount is included in the Settlement payment – 2007 RSA line item in the year ended December 31, 2013 in the table above. The liability for this settlement was included in Other current liabilities on our Consolidated Balance Sheet as of December 31, 2012.

In order to determine the amount of the contingent liability to record related to our guarantee obligations under the 2009 RSA and, prior to the Consolidation, the PEAKS Guarantee, we utilize estimates of, among other things, the projected repayment performance of the private education loans made under each of the 2009 Loan Program and the PEAKS Program, which projections involve numerous assumptions. Based on those projections and other factors, we estimate the amount of payments that we expect to make and the amounts that we expect to be repaid to us under those programs.

Under the 2009 RSA, we are entitled to all amounts that the 2009 Entity recovers from loans in a particular loan pool made under the 2009 Loan Program that have been charged off, until all payments that we made under the 2009 RSA with respect to that loan pool have been repaid to us by the 2009 Entity. Pursuant to the terms of the PEAKS Program documents, we will be entitled to repayment by the PEAKS Trust of the amount of payments we made under the PEAKS Guarantee (which do not include Payments on Behalf of Borrowers) to the extent that funds remain in the PEAKS Trust after the PEAKS Senior Debt and all fees and expenses of the PEAKS Trust have been paid in full. The PEAKS Senior Debt matures in January 2020 and, therefore, we do not expect to begin receiving any repayment of amounts that we previously paid under the PEAKS Guarantee until February 2020.

We discount the amounts that we expect will be repaid to us under each of the 2009 RSA and the PEAKS Program documents to reflect an imputed interest cost for the period of time between when payments are expected to be made by us and when amounts are expected to be repaid to us. The difference between the amount of the guarantee payments that we expect to make and the discounted amount that we expect will be repaid to us under each of the 2009 RSA and the PEAKS Program documents is included in our estimate of the amount of our contingent liability related to our guarantee obligations under the 2009 RSA and PEAKS Guarantee.

In connection with the change in accounting estimate of the contingent liability related to our guarantee obligations under the 2009 RSA, we also consider the payment options available to us under the 2009 Loan Program, including our ability to make Discharge Payments under the 2009 RSA. To the extent that we project that we will have sufficient funds available to make Discharge Payments under the 2009 RSA, we incorporate an assumption that we will make Discharge Payments into our estimate of the amount of payments that we expect to make when determining the contingent liability. Making Discharge Payments results in us paying a lesser amount than we otherwise would have been required to pay under our guarantee obligations in future periods under the 2009 RSA and, therefore, results in an estimated contingent liability amount that is less than if we had assumed that we would make Regular Payments in future periods.

In connection with estimating our recorded liability for claims and contingencies as of December 31, 2013 and 2012, we considered whether additional losses for claims and contingencies were reasonably possible, could be estimated and might be material to our financial condition, results of operations or cash flows. In order to estimate the possible range of losses under the PEAKS Guarantee (for the year ended December 31, 2012 only) and 2009 RSA (collectively, the “RSAs”), we made certain assumptions with respect to the performance of the private education loans made under the 2009 Loan Program and PEAKS Program over the life of those loans. The life of a private education loan made under the 2009 Loan Program or PEAKS Program may be in excess of ten years from the date of disbursement. Therefore, our estimate of the possible range of losses under the RSAs was based on assumptions for periods in excess of ten years, and those assumptions included, among other things, the following:

• the repayment performance of the private education loans made under each of the 2009 Loan Program and PEAKS Program;

• the timing and rate at which those private education loans will be paid;

• the changes in the variable interest rates applicable to the private education loans and PEAKS Senior Debt;

• the amounts and timing of collections in the future on those private education loans that have defaulted;

• the fees and expenses associated with servicing those private education loans; and

• our ability to utilize the available options for payment of our obligations under the 2009 RSA.

We consulted with third-party consumer credit consulting firms in arriving at our assumptions and estimates. The assumptions have changed, and may continue to change, significantly over time as actual results become known, which would affect our estimated range of possible losses related to the 2009 RSA. With respect to our guarantee obligations under the 2009 RSA, we believe that it is reasonably possible that we may incur losses in an estimated range of $11,000 less than to $28,000 greater than the liability recorded as of December 31, 2013 for those contingencies. As with any estimate, as facts and circumstances change, the recorded liability and estimated range of reasonably possible losses could change significantly. With respect to legal proceedings, we determined that we cannot provide an estimate of the possible losses, or the range of possible losses, in excess of the amount, if any, accrued, for various reasons, including but not limited to some or all of the following:

• there are significant factual issues to be resolved;

• there are novel or unsettled legal issues presented;

• the proceedings are in the early stages;

• there is uncertainty as to the likelihood of a class being certified or decertified or the ultimate size and scope of the class;

• there is uncertainty as to the outcome of pending appeals or motions; and

• in many cases, the plaintiffs have not specified damages in their complaint or in court filings.

Litigation. We are subject to various litigation in the ordinary course of our business. We cannot assure you of the ultimate outcome of any litigation involving us. Although we believe that our estimates related to any litigation are reasonable, deviations from our estimates could produce a materially different result. Any litigation alleging violations of education or consumer protection laws and/or regulations, misrepresentation, fraud or deceptive practices may also subject our affected campuses to additional regulatory scrutiny. The following is a description of pending litigation that falls outside the scope of litigation incidental to the ordinary course of our business.

On December 22, 2008, we were served with a qui tam action that was filed on July 3, 2007 in the United States District Court for the Southern District of Indiana by a former employee (“relator”) on behalf of herself and the federal government under the following caption: United States of America ex rel. Debra Leveski v. ITT Educational Services, Inc. (the “Leveski Litigation”). We were served with the Leveski Litigation after the U.S. Department of Justice declined to intervene in the litigation. On June 3, 2008, the relator filed an amended complaint in the Leveski Litigation. On September 23, 2009, the court dismissed the Leveski Litigation without prejudice and gave the relator an opportunity to replead her complaint. On October 8, 2009, the relator filed a second amended complaint. In the second amended complaint, the relator alleges that we violated the False Claims Act, 31 U.S.C. § 3729, et seq., and the HEA by compensating our sales representatives and financial aid administrators with commissions, bonuses or other incentive payments based directly or indirectly on success in securing enrollments or federal financial aid. The relator alleges that all of our revenue derived from the federal student financial aid programs from July 3, 2001 through July 3, 2007 was generated as a result of our violating the HEA. The relator seeks various forms of recovery on behalf of herself and the federal government, including:

• treble the amount of unspecified funds paid to us for federal student grants;

• treble the amount of unspecified default payments, special allowance payments and interest received by lenders with respect to federal student loans received by our students;

• all civil penalties allowed by law; and

• attorney’s fees and costs.

A qui tam action is a civil lawsuit brought by one or more individuals (a qui tam “relator”) on behalf of the federal or state government for an alleged submission to the government of a false claim for payment. A qui tam action is always filed under seal and remains under seal, until the government decides whether to intervene in the litigation. Whenever a relator files a qui tam action, the government typically initiates an investigation in order to determine whether to intervene in the litigation. If the government intervenes, it has primary control over the litigation. If the government declines to intervene, the relator may pursue the litigation on behalf of the government. If the government or the relator is successful in the litigation, the relator receives a portion of the government’s recovery.

On August 8, 2011, the district court granted our motion to dismiss all of the relator’s claims in the Leveski Litigation for lack of subject-matter jurisdiction and issued a judgment for us. On February 16, 2012, the relator in the Leveski Litigation filed a Notice of Appeal with the 7^th Circuit Court of Appeals regarding the final judgment entered by the district court dismissing all claims against us. On March 26, 2012, the district court in the Leveski Litigation awarded us approximately $395 in sanctions against the relator’s attorneys for filing a frivolous lawsuit. Relator’s attorneys also appealed this award to the 7^th Circuit Court of Appeals. On July 8, 2013, the 7^th Circuit Court of Appeals reversed the district court’s dismissal of the Leveski Litigation for lack of subject-matter jurisdiction and the award of sanctions against relator’s attorneys. In addition, the 7^th Circuit Court of Appeals remanded the Leveski Litigation back to the district court for further proceedings.

We have defended, and intend to continue to defend, ourselves vigorously against the allegations made in the complaint.

On March 11, 2013, a complaint in a securities class action lawsuit was filed against us and two of our current executive officers in the United States District Court for the Southern District of New York under the caption: William Koetsch, Individually and on Behalf of All Others Similarly Situated v. ITT Educational Services, Inc., et al. (the “Koetsch Litigation”). On April 17, 2013, a second complaint in a securities class action lawsuit was filed against us and two of our current executive officers in the United States District Court for the Southern District of New York under the caption: Massachusetts Laborers’ Annuity Fund, Individually and on Behalf of All Others Similarly Situated v. ITT Educational Services, Inc., et al. (the “MLAF Litigation”). On July 25, 2013, the court consolidated the Koetsch Litigation and the MLAF Litigation under the caption: In re ITT Educational Services, Inc. Securities Litigation (the “Securities Litigation”) and named the Plumbers and Pipefitters National Pension Fund and Metropolitan Water Reclamation District Retirement Fund as the lead plaintiffs. On October 7, 2013, an amended complaint was filed in the Securities Litigation, and on January 15, 2014, a second amended complaint was filed in the Securities Litigation. The second amended complaint alleges, among other things, that the defendants violated Sections 10(b) and 20(a) of the Exchange Act and Rule 10b-5 promulgated thereunder by:

• our failure to properly account for the 2007 RSA, 2009 RSA and PEAKS Program;

• employing devices, schemes and artifices to defraud;

• making untrue statements of material facts, or omitting material facts necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading;

• making the above statements intentionally or with reckless disregard for the truth;

• engaging in acts, practices, and a course of business that operated as a fraud or deceit upon lead plaintiffs and others similarly situated in connection with their purchases of our common stock;

• deceiving the investing public, including lead plaintiffs and the purported class, regarding, among other things, our artificially inflated statements of financial strength and understated liabilities; and

• causing our common stock to trade at artificially inflated prices and causing the plaintiff and other putative class members to purchase our common stock at inflated prices.

The putative class period in this action is from April 24, 2008 through February 25, 2013. The plaintiffs seek, among other things, the designation of this action as a class action, an award of unspecified compensatory damages, interest, costs and expenses, including counsel fees and expert fees, and such equitable/injunctive and other relief as the court deems appropriate. On July 22, 2014, the district court denied most of our motion to dismiss all of the plaintiffs’ claims for failure to state a claim for which relief can be granted. On August 5, 2014, we filed our answer to the second amended complaint denying all of the plaintiffs’ claims. All of the defendants have defended, and intend to continue to defend, themselves vigorously against the allegations made in the second amended complaint.

On September 30, 2014, a complaint in a securities class action lawsuit was filed against us and two of our current executive officers in the United States District Court for the Southern District of Indiana under the caption: David Banes, Individually and on Behalf of All Others Similarly Situated v. Kevin M. Modany, et al. (the “Banes Litigation”). The complaint alleges, among other things, that the defendants violated Sections 10(b) and 20(a) of the Exchange Act and Rule 10b-5 promulgated thereunder by:

• misleading investors regarding the integrity of our financial reporting, including the reporting of the PEAKS Trust;

• knowingly or recklessly making materially false and/or misleading statements and/or failing to disclose material adverse facts about our business operations and prospects, including that:

• our financial statements contained errors related to the accounting of the PEAKS Trust and the PEAKS Program; and

• we lacked adequate internal controls over financial reporting;

• knowingly or recklessly engaging in acts, transactions, practices, and courses of business that operated as a fraud or deceit upon the plaintiff and the purported class;

• employing devices, schemes and artifices to defraud in connection with the purchase and sale of our common stock;

• deceiving the investing public, including the plaintiff and the purported class; and

• artificially inflating and maintaining the market price of our common stock and causing the plaintiff and other putative class members to purchase our common stock at artificially inflated prices.

The putative class period in this action is from April 26, 2013 through September 19, 2014. The plaintiffs seek, among other things, the designation of this action as a class action, an award of unspecified damages, interest, costs and expenses, including counsel fees and expert fees, and such other relief as the court deems proper. All of the defendants intend to defend themselves vigorously against the allegations made in the complaint.

On October 3, 2014, a complaint in a securities class action lawsuit was filed against us and two of our current executive officers in the United States District Court for the Southern District of Indiana under the caption: Babulal Tarapara, Individually and on Behalf of All Others Similarly Situated v. ITT Educational Services, Inc., et al. (the “Tarapara Litigation”). The complaint alleges, among other things, that the defendants violated Sections 10(b) and 20(a) of the Exchange Act and Rule 10b-5 promulgated thereunder by knowingly or recklessly making false and/or misleading statements and failing to disclose material adverse facts about our business, operations, prospects and financial results. In particular, the complaint alleges that:

• we failed to consolidate the PEAKS Trust in our consolidated financial statements;

• our consolidated financial statements contained errors related to the accounting of the PEAKS Trust and PEAKS Program;

• we improperly accounted for our guarantee obligations under the PEAKS Guarantee;

• our financial results were overstated;

• we lacked adequate internal and financial controls;

• our consolidated financial statements were materially false and misleading at all relevant times;

• we artificially inflated and maintained the market price of our common stock, causing the plaintiff and other putative class members to purchase our common stock at artificially inflated prices;

• we deceived the investing public, including the plaintiff and the purported class; and

• we employed devices, schemes and artifices to defraud in connection with the purchase and sale of our common stock.

The putative class period in this action is from February 26, 2013 through September 18, 2014. The plaintiffs seek, among other things:

• the designation of this action as a class action;

• an award of unspecified compensatory damages, including interest;

• an award of reasonable costs and expenses, including counsel fees and expert fees; and

• such other relief as the court deems proper.

All of the defendants intend to defend themselves vigorously against the allegations made in the complaint.

On October 9, 2014, a complaint in a securities class action lawsuit was filed against us and two of our current executive officers in the United States District Court for the Southern District of Indiana under the caption: Kumud Jindal, Individually and on Behalf of All Others Similarly Situated v. Kevin M. Modany, et al. (the “Jindal Litigation”). The complaint alleges, among other things, that the defendants violated Sections 10(b) and 20(a) of the Exchange Act and Rule 10b-5 promulgated thereunder by knowingly or recklessly making false and/or misleading statements and failing to disclose material adverse facts about our business, operations, prospects and financial results. In particular, the complaint alleges that:

• our financial statements contained errors related to the accounting of the PEAKS Trust and PEAKS Program;

• we lacked adequate internal controls over financial reporting;

• our financial statements were materially false and misleading at all relevant times;

• we engaged in acts, transactions, practices and courses of business which operated as a fraud and deceit upon plaintiff and the purported class;

• we employed devices, schemes and artifices to defraud in connection with the purchase and sale of our common stock; and

• we artificially inflated and maintained the market price of our common stock, causing the plaintiff and other putative class members to purchase our common stock at artificially inflated prices.

The putative class period in this action is from April 26, 2013 through September 19, 2014. The plaintiffs seek, among other things, the designation of this action as a class action, an award of unspecified damages, interest, attorneys’ fees, expert fees and other costs, and such other relief as the court deems proper. All of the defendants intend to defend themselves vigorously against the allegations made in the complaint.

        On May 8, 2013, a complaint in a shareholder derivative lawsuit was filed against two of our current executive officers and all of our current Directors in the United States District Court for the Southern District of New York under the following caption: Sasha Wilfred, Derivatively on Behalf of Nominal Defendant ITT Educational Services, Inc. v. Kevin M. Modany, et al. (the “Wilfred Litigation”). The complaint alleges, among other things, that from April 24, 2008 through February 25, 2013, the defendants violated state law, including breaching their fiduciary duties to us, grossly mismanaging us, wasting our corporate assets and being unjustly enriched, by:

• causing or allowing us to disseminate to our shareholders materially misleading and inaccurate information relating to a series of risk-sharing agreements through SEC filings, press releases, conference calls, and other public statements and disclosures;

• willfully ignoring obvious and pervasive problems with our internal controls and practices and procedures, and failing to make a good faith effort to correct these problems or prevent their recurrence;

• violating and breaching fiduciary duties of care, loyalty, reasonable inquiry, oversight, good faith and supervision;

• causing or allowing us to misrepresent material facts regarding our financial position and business prospects; and

• abandoning their responsibilities and duties with regard to prudently managing our businesses in a manner imposed upon them by law.

The complaint seeks:

• unspecified damages;

• restitution;

• disgorgement of all profits, benefits and other compensation obtained by the individual defendants;

• an order directing us to take all necessary actions to reform and improve our corporate governance and internal procedures; and

• costs and disbursements, including attorneys’, accountants’ and experts’ fees, costs and expenses.

On August 6, 2013, the parties agreed to stay the Wilfred Litigation, until the Securities Litigation was dismissed with prejudice or the defendants filed an answer in the Securities Litigation. On September 8, 2014, the district court approved the parties’ agreement for an additional stay of the Wilfred Litigation, until the earlier of:

• a final disposition of the Securities Litigation; or

• 30 days after written notice terminating the stay has been provided by any of the parties in the Wilfred Litigation to all other parties.

On May 27, 2014, a complaint in a shareholder derivative lawsuit was filed against two of our current executive officers, all of our current Directors and one former Director in the United States District Court for the District of Delaware under the following caption: Janice Nottenkamper, Derivatively on Behalf of Nominal Defendant ITT Educational Services, Inc. v. Kevin M. Modany, et al. (the “Nottenkamper Litigation”). The complaint alleges, among other things, that from 2008 to May 27, 2014, the defendants engaged in illicit conduct, made false and misleading statements, concealed the truth and failed to disclose material information concerning:

• our exposure under guarantees entered into with third-party lenders to obtain financing for our students;

• increases in our bad debt expense caused by increases in student loan defaults;

• our reserves associated with our obligations under third-party private education loan programs and internal student financing;

• the unwillingness of third-party lenders to provide private education loans to our students; and

• our pushing students into high-cost private loans that were likely to default.

As a result of this conduct, the complaint alleges that the defendants breached their fiduciary duties to us, were unjustly enriched, abused their control of us and grossly mismanaged us by:

• causing or allowing us to disseminate to our shareholders materially misleading and inaccurate information relating to a series of risk-sharing agreements through SEC filings, press releases, conference calls, and other public statements and disclosures;

• willfully ignoring obvious and pervasive problems with our internal controls and practices and procedures, and failing to make a good faith effort to correct these problems or prevent their recurrence;

• violating and breaching fiduciary duties of care, loyalty, good faith, diligence and candor;

• causing or allowing us to misrepresent material facts regarding our financial position and business prospects; and

• abandoning and abdicating their responsibilities and duties with regard to prudently managing our businesses in a manner imposed upon them by law.

The complaint seeks:

• unspecified damages;

• restitution;

• disgorgement of all profits, benefits and other compensation obtained by the individual defendants;

• an order directing us to take all necessary actions to reform and improve our corporate governance and internal procedures; and

• costs and disbursements, including attorneys’, accountants’ and experts’ fees, costs and expenses.

Although the Wilfred Litigation and Nottenkamper Litigation are each brought nominally on behalf of us, we expect to incur defense costs and other expenses in connection with those actions.

On May 18, 2012, we received a Civil Investigative Demand (the “Original CID”) from the U.S. Consumer Financial Protection Bureau (the “CFPB”). In September 2013, the CFPB withdrew the Original CID and we received a new Civil Investigative Demand (the “New CID”) from the CFPB. Both the Original CID and the New CID provided that the purpose of the CFPB’s investigation was, in part, “to determine whether for-profit post-secondary companies, student loan origination and servicing providers, or other unnamed persons have engaged or are engaging in unlawful acts or practices relating to the advertising, marketing, or origination of private student loans.” Both the Original CID and the New CID contained broad requests for oral testimony, production of documents and written reports related to private education loans made to our students, internal financing provided to our students and certain other aspects of our business. We provided documentation and other information to the CFPB, while preserving our rights to object to its inquiry.

On February 26, 2014, the CFPB filed a complaint against us in the United States District Court for the Southern District of Indiana under the following caption: Consumer Financial Protection Bureau v. ITT Educational Services, Inc. (the “CFPB Litigation”). The complaint alleges, among other things, that we violated:

• Section 1036(a)(1) of the Consumer Financial Protection Act of 2010 (the “CFPA”), 12 U.S.C. §5536(a)(1), which prohibits unfair, deceptive and abusive acts and practices, from July 21, 2011 through December 2011, by:

• subjecting consumers to undue influence or coercing them into taking out private education loans through a variety of unfair acts and practices designed to interfere with the consumers’ ability to make informed, uncoerced choices;

• taking unreasonable advantage of consumers’ inability to protect their interest in selecting or using the private education loans; and

• taking unreasonable advantage of consumers’ reasonable reliance on us to act in the consumers’ interests; and

• the Truth in Lending Act, 15 U.S.C. §§ 1601 et seq., and Regulation Z thereunder, 12 C.F.R. Part 1026, which require certain disclosures to be made in writing to consumers in connection with the extension of consumer credit, since March 2009 by failing to disclose a discount that constituted a finance charge.

On April 28, 2014, we filed a motion to dismiss the CFPB Litigation for, among other reasons, lack of jurisdiction and failure to state a claim upon which relief can be granted. We have defended, and intend to continue to defend, ourselves vigorously against the allegations made in the complaint.

On February 27, 2014, the New Mexico Attorney General filed a complaint against us in the District Court of New Mexico under the following caption: State of New Mexico, ex rel. Gary K King, Attorney General v. ITT Educational Services, Inc., et al. (the “New Mexico Litigation”). On April 4, 2014, we removed the New Mexico Litigation to the U.S. District Court for the District of New Mexico. The complaint alleges, among other things, that we engaged in a pattern and practice of exploiting New Mexico consumers by using deceptive, unfair, unconscionable and unlawful business practices in the marketing, sale, provision and financing of education goods and services in violation of New Mexico’s Unfair Practices Act. In particular, the complaint contains allegations that:

• we misrepresented matters related to our nursing education program, including, without limitation, its programmatic accreditation status, the transferability of credits earned in the program and the curriculum of the program;

• we misrepresented the terms of the financial aid available to students and the cost of our programs;

• we engaged in unfair or deceptive trade practices;

• we failed to issue refunds; and

• our form enrollment agreement contained unenforceable and unconscionable provisions.

The complaint seeks:

• an order declaring portions of our enrollment agreement illusory, unconscionable and unenforceable;

• preliminary and permanent injunctive relief;

• disgorgement of unjust enrichment amounts;

• unspecified civil penalty amounts;

• restitution; and

• reasonable costs, including investigative costs.

We have defended, and intend to continue to defend, ourselves vigorously against the allegations made in the complaint.

On December 17, 2013, a complaint was filed against us in a purported class action in the Superior Court of the State of California for the County of Los Angeles under the following caption: La Sondra Gallien, an individual, James Rayonez, an individual, Giovanni Chilin, an individual, on behalf of themselves and on behalf of all persons similarly situated v. ITT Educational Services, Inc., et al. (the “Gallien Litigation”). The plaintiffs filed an amended complaint on February 13, 2014. The amended complaint alleges, among other things, that under California law, we:

• failed to pay wages owed;

• failed to pay overtime compensation;

• failed to provide meal and rest periods;

• failed to provide itemized employee wage statements;

• engaged in unlawful business practices; and

• are liable for civil penalties under the California Private Attorney General Act.

The purported class includes recruiting representatives employed by us during the period of December 17, 2009 through December 17, 2013. The amended complaint seeks:

• compensatory damages, including lost wages and other losses;

• general damages;

• pay for missed meal and rest periods;

• restitution;

• liquidated damages;

• statutory penalties;

• interest;

• attorneys’ fees, cost and expenses;

• civil and statutory penalties;

• injunctive relief; and

• such other and further relief as the court may deem equitable and appropriate.

We have defended, and intend to continue to defend, ourselves vigorously against the allegations made in the amended complaint.

There can be no assurance that the ultimate outcome of the Leveski Litigation, Securities Litigation, Banes Litigation, Tarapara Litigation, Jindal Litigation, Wilfred Litigation, Nottenkamper Litigation, CFPB Litigation, New Mexico Litigation, Gallien Litigation or other actions (including other actions under federal or state securities laws) will not have a material adverse effect on our financial condition, results of operations or cash flows.

The current officers named in the Securities Litigation, Banes Litigation, Tarapara Litigation, Jindal Litigation, Wilfred Litigation and Nottenkamper Litigation include Daniel M. Fitzpatrick and Kevin M. Modany.

Certain of our current and former officers and Directors are or may become a party in the actions described above and/or are or may become subject to government investigations. Our By-laws and Restated Certificate of Incorporation obligate us to indemnify our officers and Directors to the fullest extent permitted by Delaware law, provided that their conduct complied with certain requirements. We are obligated to advance defense costs to our officers and Directors, subject to the individual’s obligation to repay such amount if it is ultimately determined that the individual was not entitled to indemnification. In addition, our indemnity obligation can, under certain circumstances, include indemnifiable judgments, penalties, fines and amounts paid in settlement in connection with those actions and investigations.

Government Investigations. We are subject to investigations and claims of non-compliance with regulatory standards and other actions brought by regulatory agencies. Some of the more significant pending investigations, claims and actions are described below. If the results of any investigations, claims and/or actions are unfavorable to us, we may be required to pay money damages or be subject to fines, penalties, injunctions, operational limitations, loss of eligibility to participate in federal or state financial aid programs, debarments, additional oversight and reporting, or other civil and criminal sanctions. Those sanctions could have a material adverse effect on our financial condition, results of operations and cash flows.

On October 30, 2012, we received a Civil Investigative Demand (“CID”) from the Massachusetts Office of the Attorney General (“MAG”). The MAG’s CID provides that the MAG is investigating allegations that we may have violated Massachusetts General Laws, Chapter 93A, Section 2(a) by “engaging in unfair or deceptive practices in connection with marketing and advertising job placement and student outcomes, the recruitment of students, and the financing of education.” The MAG’s CID contains broad requests for production of documents related to our students in Massachusetts, including the financial aid available to those students, our recruitment of those students, the career services that we offer to those students, our marketing and advertising, the retention and graduation rates of those students and many other aspects of our business. We are cooperating with the MAG in its investigation, and we have provided documentation, communications and other information to the MAG in response to the CID. We believe that our acts and practices relating to our students in Massachusetts are lawful. There can be no assurance, however, that the ultimate outcome of the MAG investigation will not have a material adverse effect on our financial condition, results of operations and/or cash flows.

In January, February, April and May 2014, we received subpoenas and/or CIDs from the Attorneys General of Arkansas, Arizona, Colorado, Connecticut, Hawaii, Idaho, Iowa, Kentucky, Missouri, Nebraska, North Carolina, Oregon, Pennsylvania, Tennessee and Washington under the authority of each state’s consumer protection statutes. The Attorney General of the Commonwealth of Kentucky has informed us that it will serve as the point of contact for the multistate group to respond to questions relating to the subpoenas and CIDs. The subpoenas and CIDs contain broad requests for information and the production of documents related to our students and practices, including marketing and advertising, recruitment, financial aid, academic advising, career services, admissions, programs, licensure exam pass rates, accreditation, student retention, graduation rates and job placement rates, as well as many other aspects of our business. We believe that several other companies in the proprietary postsecondary education sector have received similar subpoenas and CIDs. We are cooperating with the Attorneys General of the states involved. There can be no assurance, however, that the ultimate outcome of the state Attorneys General investigation will not have a material adverse effect on our financial condition, results of operations and/or cash flows.

On February 8, 2013, we received the first of many subpoenas from the SEC. In a letter accompanying each of the subpoenas, the SEC states that it is conducting an investigation of us. The SEC’s subpoenas requested the production of documents and communications that, among other things, relate to our actions and accounting associated with:

• agreements that we entered into with the 2009 Entity to create the 2009 Loan Program, including, without limitation, the 2009 RSA;

• agreements that we entered into to create the PEAKS Program;

• certain accounting-related documents associated with the 2009 Loan Program, the PEAKS Program and internal student financing; and

• our board of directors-related materials associated with the 2009 Loan Program, the PEAKS Program and internal student financing.

We have provided the information requested, including testimony of senior employees. On August 7, 2014, we received a “Wells Notice” from the Staff of the SEC notifying us that the Staff had made a preliminary determination to recommend that the SEC file an enforcement action against us. According to the Staff, the enforcement action would allege violations of Sections 10(b), 13(a) and 13(b)(2) of the Exchange Act and Rules 10b-5, 12b-20, 13a-1, 13a-11, 13a-13 and 13a-15 under the Exchange Act. The proposed action relates primarily to certain disclosures and accounting surrounding the two loan programs noted above. The SEC’s notice said that the Staff’s recommendation may:

• involve a civil injunctive action, public administrative proceeding and/or cease-and-desist proceeding against us; and

• seek remedies that include an injunction, a cease-and-desist order and monetary relief, including civil monetary penalties.

A Wells Notice is neither a formal allegation nor a finding of wrongdoing. Instead, it is a preliminary determination by the Staff to recommend that the SEC file a civil enforcement action or administrative proceeding against the recipient. Under the SEC’s procedures, a recipient of a Wells Notice has an opportunity to respond in the form of a Wells submission that seeks to persuade the SEC that such an action should not be brought. Accordingly, we made a submission to the Staff in response to the Wells Notice setting forth why the factual record does not support the enforcement action recommended by the Staff and that any perceived shortcomings were made in good faith. Although we intend to defend ourselves vigorously should the SEC authorize any legal action that does not comport with our view of the facts, we cannot predict the outcome of any legal action or whether the matters will result in any settlement. We cannot assure you that the ultimate outcome of the SEC investigation, any legal action by the SEC or any settlement will not have a material adverse effect on our financial condition, results of operations and/or cash flows.

Lease Commitments. We lease our non-owned facilities under operating lease agreements. A majority of the operating leases contain renewal options that can be exercised after the initial lease term. Renewal options are generally for periods of one to five years. All operating leases will expire over the next 10 years and we expect that:

• most of those leases will be renewed or replaced by other leases in the normal course of business;

• we may purchase the facilities represented by those leases; or

• we may purchase or build other replacement facilities.

There are no material restrictions imposed by the lease agreements, and we have not entered into any significant guarantees related to the leases. We are required to make additional payments under the operating lease terms for taxes, insurance and other operating expenses incurred during the operating lease period.

Rent expense under our operating leases was:

• $53,212 in the year ended December 31, 2013;

• $50,817 in the year ended December 31, 2012; and

• $47,833 in the year ended December 31, 2011.

Future minimum rental payments required under our operating leases that have initial or remaining non-cancelable lease terms in excess of one year as of December 31, 2013 are as follows:

2014	$	44,714
2015		38,582
2016		27,939
2017		19,084
2018		13,282
2019 and thereafter		12,446
	$	156,047

Future minimum rental payments related to equipment leases are not significant.

Guarantees. We entered into the PEAKS Guarantee in connection with the PEAKS Program and the 2009 RSA in connection with the 2009 Loan Program. Under the PEAKS Guarantee, we guarantee payment of the principal and interest owed on the PEAKS Senior Debt, the administrative fees and expenses of the PEAKS Trust and a minimum required Asset/Liability Ratio. The PEAKS Guarantee contains, among other things, representations and warranties and events of default that we believe are customary for guarantees of this type. In addition, under the PEAKS Program, some or all of the holders of the PEAKS Senior Debt could require us to purchase their PEAKS Senior Debt, if the law is changed to reduce the maximum allowable percentage of our annual revenue derived from Title IV Program funds from 90% to 75% or less. At this time, we believe that the likelihood of such a change in the law is remote. Our guarantee and purchase obligations under the PEAKS Program remain in effect until the PEAKS Senior Debt and the PEAKS Trust’s fees and expenses are paid in full. At such time, we will be entitled to repayment of the amount of any payments we made under the PEAKS Guarantee (which do not include Payments on Behalf of Borrowers) to the extent that funds are remaining in the PEAKS Trust. As of December 31, 2012, the amount of payments that we had previously made under the PEAKS Guarantee and that we expected to recover was $12,342. We recorded this amount, net of an accrued discount of $5,674, in Other assets on our Consolidated Balance Sheet as if December 31, 2012.

We concluded that we were required to consolidate the PEAKS Trust in our consolidated financial statements beginning on February 28, 2013. See Note 10 – Variable Interest Entities, for a further discussion of the Consolidation. As a result, the assets and liabilities of the PEAKS Trust have been included on, and all intercompany transactions have been eliminated from, our Consolidated Balance Sheet as of December 31, 2013. While we no longer record a contingent liability for the PEAKS Guarantee on our Consolidated Balance Sheet beginning on February 28, 2013, our obligations under the PEAKS Guarantee remain in effect.

We entered into the 2009 RSA in connection with the 2009 Loan Program. Under the 2009 RSA, we guarantee the repayment of the principal amount (including capitalized origination fees) and accrued interest payable on any private education loans that are charged off above a certain percentage of the private education loans made under the 2009 Loan Program, based on the annual dollar volume. The total initial principal amount of private education loans that the 2009 Entity purchased under the 2009 Loan Program was approximately $141,000. No new private education loans were or will be originated under the 2009 Loan Program after December 31, 2011, but immaterial amounts related to loans originated prior to that date were disbursed by the lender through June 2012. Our obligations under the 2009 RSA will remain in effect, until all private education loans made under the 2009 Loan Program are paid in full or charged off. The standard repayment term for a private education loan made under the 2009 Loan Program is ten years, with repayment generally beginning six months after a student graduates or three months after a student withdraws or is terminated from his or her program of study.

Under the 2009 RSA, we have the right to elect to make Discharge Payments with respect to private education loans made under the 2009 Loan Program that have been charged off. The effect of a making a Discharge Payment related to a private education loan is to reduce the aggregate amount that we may have to pay under our guarantee obligations with respect to that loan. We have claimed as an offset against the Revolving Note amounts that would have the effect of discharging our obligations with respect to certain charged off loans under the 2009 RSA. In addition, in the three months ended December 31, 2013, we made Discharge Payments to the 2009 Entity. We may continue to make Discharge Payments in future periods, if we believe that doing so would be economically beneficial to us. Making Discharge Payments may result in us paying amounts to the 2009 Entity in advance of when a guarantee payment would be due, which would negatively impact our liquidity in a particular period, but may result in us paying a lesser amount than we otherwise would have been required to pay under our guarantee obligation in future periods under the 2009 RSA. See Note 10 – Variable Interest Entities, for a further discussion of Discharge Payments.

We are not able to estimate the undiscounted maximum potential amount of future payments that we could be required to make under the 2009 RSA, because those payments will be affected by:

• the timing of future defaults;

• the use, timing and length of forbearances granted to borrowers;

• of the use, timing and length of deferral periods;

• changes in the interest rate on the loans made under the 2009 Loan Program, since those loans are based on the prime rate plus a margin; and

• the fact that those loans will consist of a large number of loans of individually immaterial amounts.

We believe that it is probable that we will make additional payments under the 2009 RSA. The following table sets forth the estimated amount of Regular Payments and Discharge Payments that we expect to pay and the estimated amount of recoveries from charged-off loans that we expect to be paid to us by the 2009 Entity in the periods indicated:

Year	Estimated Regular Payments		Estimated Discharge Payments		Estimated Total Payments		Estimated Recoveries
2014	$	9,009	$	0	$	9,009	$	(1,011	)
2015		14,251		0		14,251		(1,200	)
2016		16,060		0		16,060		(1,200	)
2017		16,333		0		16,333		(1,200	)
2018 and later		0		75,194		75,194		(300	)
	$	55,653	$	75,194	$	130,847	$	(4,911	)

We believe that the vast majority of the $75,194 of estimated payments projected to be paid after 2017 will be made by us in 2018. The estimated future payment amounts and timing related to the 2009 RSA assume, among other factors, that we do not make any Discharge Payments until 2018 and do make Discharge Payments to the fullest extent possible in 2018 and later years. If we do not make the Discharge Payments as assumed in 2018 and later years, we estimate that we would make approximately $97,400 of Regular Payments in 2018 through 2027. Of this amount, approximately $15,100 to $16,400 would be paid annually in each of 2018 through 2022, and approximately $16,600, in the aggregate, would be paid in 2023 through 2027.

The amounts of the estimated Regular Payments and the estimated recoveries were discounted at a risk-free rate of interest in determining our contingent liability for the 2009 RSA. The total amount of the discount as of December 31, 2013 was approximately $9,015.

The estimated future payment amounts, the estimated timing of those payments and the estimated amount of recoveries with respect to the RSAs discussed above and elsewhere in this Annual Report on Form 10-K are only estimates, are based on numerous assumptions and are subject to change. As with any estimate, as facts and circumstances change, the estimated amounts and timing could change. We made a number of assumptions in preparing the estimates, which assumptions may not be correct. The assumptions included, among other things, the following:

• the repayment performance of the private education loans made under the 2009 Loan Program or PEAKS Program, as applicable;

• the timing and rate at which those private education loans will be paid;

• the changes in the variable interest rates applicable to those private education loans and, with respect to the PEAKS Program, the PEAKS Senior Debt;

• the amounts and timing of collections in the future on those private education loans that have been charged off;

• the fees and expenses associated with servicing those private education loans; and

• our ability to utilize the available options for payment of our obligations under the 2009 RSA.

Pursuant to the 2009 RSA, we are required to maintain collateral to secure our guarantee obligation in an amount equal to a percentage of the outstanding balance of the private education loans disbursed to our students under the 2009 Loan Program. As of December 31, 2013 and December 31, 2012, the total collateral maintained in a restricted bank account was approximately $8,600. This amount was included in Other assets on our Consolidated Balance Sheets as of each of those dates. The 2009 RSA also requires that we comply with certain covenants, including that we maintain certain financial ratios which are measured on a quarterly basis and deliver compliance certificates on a quarterly basis setting forth the status of our compliance with those financial ratios. If we are not in compliance with those covenants at the end of each fiscal quarter, we are required to increase the amount of collateral maintained in the restricted bank account to a predetermined amount, until the end of a succeeding quarter at which we are in compliance with those covenants. The predetermined amount is based on the percentage of the aggregate principal balance of the private education loans made under the 2009 Loan Program that exceeds a certain percentage as of the end of each fiscal quarter. We were not in compliance with those covenants as of December 31, 2013.

As a consequence of the restatement of our unaudited condensed consolidated financial statements in our Quarterly Reports on Form 10-Q for the fiscal quarters ended March 31, 2013, June 30, 2013 and September 30, 2013, certain quarterly compliance certificates that we were required to deliver to the 2009 Entity under the 2009 RSA were inaccurate. Those inaccuracies did not affect our compliance with the financial ratio covenants in the 2009 RSA as of March 31, 2013. We were not, however, in compliance with the financial ratio covenants in the 2009 RSA as of June 30, 2013 and subsequent measurement dates. Further, due to our failure to timely file our Annual Report on Form 10-K for the fiscal year ended December 31, 2013 and our Quarterly Reports on Form 10-Q for the fiscal quarters ended March 31, 2014 and June 30, 2014, we did not timely deliver the required compliance certificates under the 2009 RSA with respect to those periods. As a result of our noncompliance with the financial ratio covenants as of June 30, 2013 and subsequent measurement dates, the amount of collateral required to be maintained in the restricted bank account has been increased by approximately $2,600. We intend to make in October 2014 a deposit in that amount to the restricted bank account to be held as additional collateral under the 2009 RSA.

The following table sets forth the approximate aggregate amount of guarantee payments, Discharge Payments and Payments on Behalf of Borrowers that were made related to the PEAKS Program and 2009 RSA and the amount of recoveries from charged-off loans paid to us by the 2009 Entity, in the periods indicated:

	January 1, 2013 Through February 28, 2013(1)(2)		March 1, 2013 Through December 31, 2013(1)(2)		Total Year Ended December 31, 2013			Year Ended December 31, 2012
Type of Payment (Receipt)
Guarantee:
PEAKS Program	$	854	$	1,559	$	2,413		$	12,342
2009 RSA Regular Payments		0		0		1,791			1,990
2009 RSA Discharge Payments		0		0		912			0
Payments on Behalf of Borrowers		532		10,967		11,499			2,762
2009 RSA-Recoveries from Charged-Off Loans		0		0		(103	)		(234	)
Total	$	1,386	$	12,526	$	16,512		$	16,860

(1) We have provided separate columns showing the payment amounts prior to and after the Consolidation, because all transactions with the PEAKS Trust were eliminated from our consolidated financial statements after the Consolidation. Cash payments were, however, made by us throughout the periods indicated, including the periods after the Consolidation.

(2) The 2009 RSA payments are made to, and recoveries are received from, the 2009 Entity. The 2009 Entity was not consolidated in our consolidated financial statements and, therefore, separate disclosure of amounts paid or received before and after the February 28, 2013 date of Consolidation is not applicable.

In the fiscal year ended December 31, 2013, we also offset $9,091 owed by us under the 2009 RSA against amounts owed to us by the 2009 Entity under the Revolving Note, instead of making additional payments in that amount. Approximately $6,786 of the amount that we claimed as an offset against the Revolving Note in the fiscal year ended December 31, 2013 represented Discharge Payments. We recorded all of the amounts claimed as offsets in Other current liabilities on our Consolidated Balance Sheet as of December 31, 2013. In the year ended December 31, 2013, the 2009 Entity did not remit to us $574 of recoveries from charged-off loans that were owed to us. We recorded all of the amounts owed to us from the 2009 Entity for recoveries from charged-off loans in Prepaid expenses and other current assets on our Consolidated Balance Sheet as of December 31, 2013.

In the first quarter of 2013, we notified the 2009 Entity that:

• we had determined that the 2009 Entity was in default of its obligations to us under the loan and security agreement pursuant to which the Revolving Note was issued (the “2009 Loan Agreement”);

• as a result of that default, all amounts under the Revolving Note were immediately due and payable; and

• we would not make payments under the 2009 RSA until we received credit for the full amount due us under the Revolving Note, based on the provisions of the 2009 Loan Agreement and the 2009 RSA that allow us to set off amounts owed by us under the 2009 RSA against amounts owed to us by the 2009 Entity under the Revolving Note.

At that time, the outstanding amount of the Revolving Note due to us was approximately $8,200, representing principal and accrued interest. In response to our notification, the 2009 Entity:

• denied that it had defaulted under the 2009 Loan Agreement and, therefore, our ability to accelerate the payment of the Revolving Note; and

• refused our demand to immediately pay the Revolving Note in full.

As a consequence, over the period from February 2013 through August 2013, we offset our then current payment obligations under the 2009 RSA and the amount of Discharge Payments we elected to make during that period against all of the 2009 Entity’s obligations owed to us under the Revolving Note (the “Offset”).

We understand that the 2009 Entity’s position is that the Offset was improper, because:

• it has not defaulted under the 2009 Loan Agreement; and

• even if it had defaulted under the 2009 Loan Agreement, the assets of the 2009 Entity against which we could offset or exercise our other remedies, were limited.

We further understand the 2009 Entity’s position to be that, because the Offset was improper, we are in default under the 2009 RSA. In April 2013, the 2009 Entity notified us that it had taken control of the restricted account containing the cash collateral that we deposited to secure our obligations under the 2009 RSA (the “Collateral”). At that time, the amount of funds in that account was approximately $8,600. To our knowledge, the 2009 Entity has taken no further action related to the Collateral. We believe that our good faith exercise of our right of offset provided for in the 2009 Loan Agreement and the 2009 RSA does not constitute an event of default under the 2009 RSA, and that the 2009 Entity’s seizure of control of the restricted account containing the Collateral constitutes an additional default by the 2009 Entity. We cannot assure you, however, that the Offset will ultimately be determined to have been proper. In the event of a default by us under the 2009 RSA related to the Offset, we may be required to pay to the 2009 Entity approximately $8,600, representing the amount of the Offset, net of approximately $500 of recoveries from charged-off loans that are owed, but have not been paid, to us. If the 2009 Entity instead were to withdraw Collateral in that amount from the restricted bank account, we would be required to deposit that amount of cash in the account to maintain the required level of Collateral. Any such payment or deposit would reduce the amount of our contingent liability related to the 2009 RSA.

At the end of each reporting period, we assess whether we should recognize a contingent liability related to our guarantee obligations under the 2009 RSA (and, prior to February 28, 2013, the PEAKS Guarantee) and, if so, in what amount. As with any assessment, as facts and circumstances change, the recorded liability could change, and has changed, significantly. In order to make this assessment, we made certain assumptions with respect to the performance of the private education loans made under the 2009 Loan Program (and, prior to February 28, 2013, the PEAKS Program) over the life of those loans. The life of a private education loan made under the 2009 Loan Program or PEAKS Program may be in excess of ten years from the date of disbursement. Therefore, our assessment was based on assumptions for periods in excess of ten years, and those assumptions included, among other things, the following:

• the repayment performance of the private education loans made under the 2009 Loan Program (and, prior to February 28, 2013, the PEAKS Program);

• the timing and rate at which those private education loans will be paid;

• the changes in the variable interest rates applicable to those private education loans (and, prior to February 28, 2013, the PEAKS Senior Debt);

• the amounts and timing of collections in the future on those private education loans that have defaulted;

• prior to February 28, 2013, the fees and expenses associated with servicing the PEAKS Trust Student Loans; and

• our ability to utilize the available options for payment of our obligations under the 2009 RSA.

We consulted with third-party consumer credit consulting firms in arriving at our assumptions. The assumptions have changed, and may continue to change, significantly over time as actual results become known. Our recorded liability for our guarantee obligations under the 2009 RSA (and, prior to February 28, 2013, the PEAKS Guarantee) was included in Other current liabilities and Other liabilities on our Consolidated Balance Sheets.

XML

Variable Interest Entities - Schedule of Carrying Value of Assets and Liabilities Eliminated from Financial Statement (Detail) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2013	Feb. 28, 2013	Dec. 31, 2012
Receivables [Abstract]
Other assets	$ 58,923	$ 6,614	$ 41,263
Total assets	806,851	6,614	675,204
Other current liabilities	42,136	3,060	106,796
Other liabilities	146,087	43,054	82,416
Total	$ 691,205	$ 46,114	$ 549,439

XML

CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011
Cash flows from operating activities:
Net income (loss)	$ (27,024)	$ 138,970	$ 309,086
Adjustments to reconcile net income to net cash flows from operating activities:
Depreciation and amortization	27,252	29,350	27,886
Provision for doubtful accounts	67,640	56,818	35,655
Deferred income taxes	(54,425)	(59,999)	(8,991)
Excess tax benefit from stock option exercises	0	(1,382)	(1,166)
Stock-based compensation expense	11,638	16,658	17,074
Settlement cost	(46,000)	21,750	0
Asset impairment	0	15,166	0
Provision for PEAKS Trust student loan losses	29,349	0	0
Loss on consolidation of PEAKS Trust	73,248	0	0
Other	315	6,992	(1,936)
Changes in operating assets and liabilities, net of acquisition:
Restricted cash	(455)	3,794	(942)
Accounts receivable	(87,225)	(87,138)	(17,004)
PEAKS Trust student loans	11,554	0	0
Accounts payable	(5,574)	(15,572)	10,956
Other operating assets and liabilities	74,203	72,857	35,964
Deferred revenue	11,299	(90,643)	(17,819)
Net cash flows from operating activities	77,725	107,621	388,763
Cash flows from investing activities:
Facility expenditures and land purchases	(679)	(1,046)	(4,053)
Capital expenditures, net	(4,468)	(17,204)	(26,847)
Acquisition of company, net of cash acquired	(7,150)	0	0
Proceeds from sales and maturities of investments and repayment of notes	461	217,301	337,032
Purchase of investments and note advances	(1,242)	(75,887)	(352,195)
Net cash flows from investing activities	(13,078)	123,164	(46,063)
Cash flows from financing activities:
Excess tax benefit from stock option exercises	0	1,382	1,166
Proceeds from exercise of stock options	0	8,345	5,599
Debt issue costs	0	(1,525)	0
Proceeds from revolving borrowings	0	175,000	0
Repayment of revolving borrowings	(90,000)	(185,000)	0
Repayment of PEAKS Trust senior debt	(1,946)	0	0
Repurchase of common stock and shares tendered for taxes	(395)	(209,371)	(283,320)
Net cash flows from financing activities	(92,341)	(211,169)	(276,555)
Net change in cash and cash equivalents	(27,694)	19,616	66,145
Cash and cash equivalents at beginning of period	243,465	223,849	157,704
Cash and cash equivalents at end of period	215,771	243,465	223,849
Cash paid during the period for:
Income taxes (net of refunds)	61,131	139,919	196,387
Interest	3,310	3,047	1,842
Non-cash operating activities:
Consolidation of PEAKS Trust assets	113,819	0	0
Consolidation of PEAKS Trust liabilities	471	0	0
Non-cash financing activities:
Issuance of treasury stock for Directors' compensation	0	37	30
Consolidation of PEAKS Trust senior debt	226,096	0	0
PEAKS Trust Student Loans [Member]
Adjustments to reconcile net income to net cash flows from operating activities:
Asset impairment		10,300
Accretion of discount on PEAKS Trust	(12,996)	0	0
Provision for PEAKS Trust student loan losses	29,349
Loss on consolidation of PEAKS Trust	(73,248)
PEAKS Trust senior debt [Member]
Adjustments to reconcile net income to net cash flows from operating activities:
Accretion of discount on PEAKS Trust	$ 4,926	$ 0	$ 0

XML

CONSOLIDATED BALANCE SHEETS (unaudited) (Parenthetical) (USD $) In Thousands, except Share data, unless otherwise specified	Dec. 31, 2013	Dec. 31, 2012
Statement of Financial Position [Abstract]
Accounts receivable, allowance for doubtful accounts	$ 9,174	$ 15,663
Allowance for Loan losses	0	0
Allowance for loan losses	$ 29,349	$ 0
Preferred stock, par value	$ 0.01	$ 0.01
Preferred stock, shares authorized	5,000,000	5,000,000
Preferred stock, shares issued	0	0
Common stock, par value	$ 0.01	$ 0.01
Common stock, shares authorized	300,000,000	300,000,000
Common stock, shares issued	37,068,904	37,068,904
Treasury stock, shares	13,698,716	13,744,395

XML

Earnings (Loss) Per Common Share

12 Months Ended

Dec. 31, 2013

Earnings Per Share [Abstract]

Earnings (Loss) Per Common Share

9. Earnings (Loss) Per Common Share

Earnings (loss) per common share for all periods have been calculated in conformity with ASC 260, “Earnings Per Share.” This data is based on historical net income (loss) and the weighted average number of shares of our common stock outstanding during each period as set forth in the following table:

	Year Ended December 31,
	2013		2012		2011
	(In thousands)
Shares:
Weighted average number of shares of common stock outstanding		23,412		23,880		27,429
Shares assumed issued (less shares assumed purchased for treasury) for stock-based compensation		Not Applicable		119		226
Outstanding shares for diluted earnings (loss) per share calculation		23,412		23,999		27,655

XML

Risks and Uncertainties - Additional Information (Detail) (USD $) In Thousands, unless otherwise specified			1 Months Ended	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2013 Credit Agreement [Member]	Apr. 30, 2013 PEAKS Guarantee [Member]	Dec. 31, 2012 PEAKS Guarantee [Member]	Dec. 31, 2013 2013 [Member] PEAKS Guarantee [Member] Scenario, Forecast [Member]	Dec. 31, 2013 2013 [Member] 2009 RSA [Member] Scenario, Forecast [Member]	Dec. 31, 2013 2014 [Member] PEAKS Guarantee [Member] Scenario, Forecast [Member]	Dec. 31, 2013 2014 [Member] 2009 RSA [Member] Scenario, Forecast [Member]
Unusual Risk or Uncertainty [Line Items]
Payments under PEAKS guarantee			$ 60,340	$ 12,342	$ 163,966		$ 9,165
Payments under Laon Program						9,009		14,251
Cash collateral, percentage	103.00%
Percentage of cash collateral amount equal to face amount	109.00%
Cash collateral to be provided for letter of credit as of the filing date	89,300
Borrowings under credit agreement		$ 50,000

XML

Employee Benefit Plans - Components of Net Periodic Pension Benefit of Pension Plan and Excess Pension Plan (Detail) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011
Compensation and Retirement Disclosure [Abstract]
Interest cost	$ 1,756	$ 2,062	$ 2,405
Expected return on assets	(4,344)	(4,231)	(4,756)
Recognized net actuarial loss	2,037	2,718	1,803
Amortization of prior service (credit) cost	(1,555)	(1,555)	(1,555)
Settlement loss	42	792	1,204
Total net periodic pension benefit (income)	$ (2,064)	$ (214)	$ (899)

XML

Employee Benefit Plans - Amounts in Accumulated Other Comprehensive Loss on Consolidated Balance Sheets that have not been Recognized as Components of Net Periodic Pension Benefit Cost (Detail) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2013	Dec. 31, 2012
Compensation and Retirement Disclosure [Abstract]
Net actuarial (loss)	$ (546)	$ (20,191)
Prior service credit	5,578	7,133
Total accumulated other comprehensive income (loss)	5,032	(13,058)
Income tax benefit (expense)	(1,886)	5,128
Total accumulated other comprehensive income (loss), net of tax	$ 3,146	$ (7,930)

XML

Document and Entity Information (USD $)	12 Months Ended
	Dec. 31, 2013	Sep. 30, 2014	Jun. 28, 2013
Document And Entity Information [Abstract]
Document Type	10-K
Amendment Flag	false
Document Period End Date	Dec. 31, 2013
Document Fiscal Year Focus	2013
Document Fiscal Period Focus	FY
Trading Symbol	ESI
Entity Registrant Name	ITT EDUCATIONAL SERVICES INC
Entity Central Index Key	0000922475
Current Fiscal Year End Date	--12-31
Entity Well-known Seasoned Issuer	No
Entity Current Reporting Status	No
Entity Voluntary Filers	No
Entity Filer Category	Large Accelerated Filer
Entity Common Stock, Shares Outstanding		23,449,175
Entity Public Float			$ 566,443,560

XML

Variable Interest Entities

12 Months Ended

Dec. 31, 2013

Text Block [Abstract]

Variable Interest Entities

10. Variable Interest Entities

Under ASC 810, an entity that holds a variable interest in a VIE and meets certain requirements would be considered to be the primary beneficiary of the VIE and required to consolidate the VIE in its consolidated financial statements. In order to be considered the primary beneficiary of a VIE, an entity must hold a variable interest in the VIE and have both:

• the power to direct the activities that most significantly impact the economic performance of the VIE; and

• the right to receive benefits from, or the obligation to absorb losses of, the VIE that could be potentially significant to the VIE.

The PEAKS Trust and the 2009 Entity (defined below) are VIEs as defined under ASC 810. We hold variable interests in the PEAKS Trust as a result of:

• a subordinated note issued to us by the PEAKS Trust in exchange for the portion of each private education loan disbursed to us under the PEAKS Program that we transferred to the PEAKS Trust (“Subordinated Note”); and

• our guarantee of the payment of the principal and interest owed on the PEAKS Senior Debt, the administrative fees and expenses of the PEAKS Trust and a minimum required ratio of assets of the PEAKS Trust to outstanding PEAKS Senior Debt (“PEAKS Guarantee”).

We hold variable interests in an unaffiliated entity (the “2009 Entity) as a result of:

• a risk sharing agreement that we entered into with the 2009 Entity (the “2009 RSA”) on February 20, 2009 in connection with other agreements to create a program that made private education loans available to our students to help pay the students’ cost of education that financial aid from federal, state and other sources did not cover (the “2009 Loan Program”); and

• a revolving note owed to us by the 2009 Entity (the “Revolving Note”).

To determine whether we are the primary beneficiary of the PEAKS Trust or the 2009 Entity, we:

• assessed the risks that the VIE was designed to create and pass through to its variable interest holders;

• identified the variable interests in the VIE;

• identified the other variable interest holders and their involvement in the activities of the VIE;

• identified the activities that most significantly impact the VIE’s economic performance;

• determined whether we have the power to direct those activities; and

• determined whether we have the right to receive the benefits from, or the obligation to absorb the losses of, the VIE that could potentially be significant to the VIE.

We determined that the activities of the PEAKS Trust and the 2009 Entity that most significantly impact the economic performance of the PEAKS Trust and the 2009 Entity involve the servicing (which includes the collection) of the PEAKS Trust Student Loans and loans owned by the 2009 Entity. To make that determination, we analyzed various possible scenarios of student loan portfolio performance to evaluate the potential economic impact on the PEAKS Trust and the 2009 Entity. In our analysis, we made what we believe are reasonable assumptions based on historical data for the following key variables:

• the composition of the credit profiles of the borrowers;

• the interest rates and fees charged on the loans;

• the default rates and the timing of defaults associated with similar types of loans; and

• the prepayment and the speed of repayment associated with similar types of loans.

Based on our analysis, we concluded that we became the primary beneficiary of the PEAKS Trust on February 28, 2013. This was the first date that we had the power to direct the activities of the PEAKS Trust that most significantly impact the economic performance of the PEAKS Trust, because we could have exercised our right to terminate the PEAKS Servicing Agreement (as defined below), due to the failure of the entity that performs those servicing activities for the PEAKS Trust Student Loans on behalf of the PEAKS Trust to meet certain performance criteria specified in the PEAKS Servicing Agreement. We have not, however, exercised our right to terminate the PEAKS Servicing Agreement. As a result of our primary beneficiary conclusion, we consolidated the PEAKS Trust in our consolidated financial statements beginning on February 28, 2013. Prior to February 28, 2013, the PEAKS Trust was not required to be consolidated in our consolidated financial statements, because we concluded that we were not the primary beneficiary of the PEAKS Trust prior to that time. The PEAKS Trust is discussed in more detail below. The PEAKS Servicing Agreement is the agreement between the servicer and the PEAKS Trust (among other parties) that specifies the servicing activities to be provided by the servicer related to the PEAKS Trust Student Loans (the “PEAKS Servicing Agreement”).

Our consolidated financial statements for periods after February 28, 2013 include the PEAKS Trust, because we were considered to have control over the PEAKS Trust under ASC 810 as a result of our substantive unilateral right to terminate the PEAKS Servicing Agreement. We do not, however, actively manage the operations of the PEAKS Trust, and the assets of the consolidated PEAKS Trust can only be used to satisfy the obligations of the PEAKS Trust. Our obligations under the PEAKS Guarantee remain in effect, until the PEAKS Senior Debt and the PEAKS Trust’s fees and expenses are paid in full. See Note 16—Commitments and Contingencies.

Based on our analysis, we also concluded that we were not the primary beneficiary of the 2009 Entity as of December 31, 2013, because we did not have the power to direct the servicing activities on the private education loans owned by the 2009 Entity. As a result, we are not required under ASC 810 to consolidate the 2009 Entity in our consolidated financial statements as of and for the fiscal year ended December 31, 2013. Our conclusion that we were not the primary beneficiary of the 2009 Entity did not change from the prior reporting period. Therefore, there was no effect on our consolidated financial statements arising from our conclusion that we were not the primary beneficiary of the 2009 Entity. The 2009 Entity is discussed in more detail below.

We may become the primary beneficiary of the 2009 Entity, if the entity that performs the servicing activities for the 2009 Entity (the “2009 Loan Program Servicer”) fails to meet certain performance criteria specified in the servicing agreement that governs the servicing activities of the private education loans made under the 2009 Loan Program (the “2009 Servicing Agreement”). If the 2009 Loan Program Servicer fails to meet those performance criteria, we have the right to terminate the 2009 Servicing Agreement and, therefore, would be considered to have the power to direct the activities of the 2009 Entity that most significantly impact the economic performance of the 2009 Entity. If that occurs, we would be required to consolidate the 2009 Entity in our consolidated financial statements. As of December 31, 2013, we believe that the performance criteria specified in the 2009 Servicing Agreement were met and, therefore, we did not have the right to terminate the 2009 Servicing Agreement. Based on preliminary loan performance data as of September 30, 2014 that we have received regarding the private education loans made under the 2009 Loan Program, however, we believe that, as of September 30, 2014, the 2009 Loan Program Servicer may not have met the performance criteria specified in the 2009 Servicing Agreement. As a result, it appears likely that the 2009 Loan Program Servicer either has failed, or within the foreseeable future will fail, to meet the performance criteria in the 2009 Servicing Agreement. Once that occurs, following a cure period and that assuming that no cure occurs, we will have the right to terminate the 2009 Servicing Agreement. As a result of that right, we will be required to consolidate the 2009 Entity into our consolidated financial statements. We believe that this right to terminate the 2009 Servicing Agreement will become operative in late 2014 or early 2015.

PEAKS Trust. On January 20, 2010, we entered into agreements with unrelated third parties to establish the PEAKS Program, which was a private education loan program for our students. Under the PEAKS Program, an unrelated lender originated private education loans to our eligible students and, subsequently, sold those loans to the PEAKS Trust. The PEAKS Trust issued the PEAKS Senior Debt to investors. The lender disbursed the proceeds of the private education loans to us for application to the students’ account balances with us that represented their unpaid education costs. We transferred a portion of the amount of each private education loan disbursed to us under the PEAKS Program to the PEAKS Trust in exchange for the Subordinated Note. No new private education loans were or will be originated under the PEAKS Program after July 2011, but immaterial amounts related to loans originated prior to that date were disbursed by the lender through March 2012.

The Subordinated Note does not bear interest and was recorded net of an unamortized discount based on an imputed interest rate of 9.0% in Other assets on our Consolidated Balance Sheet as of December 31, 2012. Prior to October 1, 2012, the discount was amortized and recognized in Interest income in our Consolidated Statements of Income over the term of the Subordinated Note. The maturity date of the Subordinated Note is in March 2026. The amount owed to us under the Subordinated Note was approximately $73,000 as of December 31, 2012. The carrying value of the Subordinated Note was eliminated from our Consolidated Balance Sheet when we consolidated the PEAKS Trust in our consolidated financial statements beginning on February 28, 2013.

The PEAKS Trust utilized the proceeds from the issuance of the PEAKS Senior Debt and the Subordinated Note to purchase the private education loans made by the lender to our students. The assets of the PEAKS Trust (which include, among other assets, the PEAKS Trust Student Loans) serve as collateral for, and are intended to be the principal source of, the repayment of the PEAKS Senior Debt and the Subordinated Note.

In the three months ended December 31, 2012, we determined it was probable that we would not collect the carrying value of the Subordinated Note and, therefore, concluded that the Subordinated Note was impaired. We recorded an impairment charge in the amount of approximately $10,300, which equaled the total carrying value of the Subordinated Note prior to recording the impairment charge. The carrying value of the Subordinated Note was approximately $0 as of December 31, 2012, and was included on our Consolidated Balance Sheet in Other assets. The carrying value of the Subordinated Note was eliminated from our Consolidated Balance Sheet when we consolidated the PEAKS Trust in our consolidated financial statements. We did not recognize any interest income related to the Subordinated Note in our Consolidated Statements of Income after September 30, 2012.

Under the PEAKS Guarantee we guarantee payment of the principal and interest owed on the PEAKS Senior Debt, the administrative fees and expenses of the PEAKS Trust and a minimum required ratio of assets of the PEAKS Trust to outstanding PEAKS Senior Debt. Our guarantee obligations under the PEAKS Program remain in effect until the PEAKS Senior Debt and the PEAKS Trust’s fees and expenses are paid in full. At such time, we will be entitled to repayment of the amounts that we paid under the PEAKS Guarantee (which do not include Payments on Behalf of Borrowers, as defined below), to the extent of available funds remaining in the PEAKS Trust. As of December 31, 2012, we had made payments totaling $12,342 under the PEAKS Guarantee (excluding Payments on Behalf of Borrowers), which we expected to be repaid to us (the “PEAKS Guarantee Receivable”). The PEAKS Guarantee Receivable was eliminated from our Consolidated Balance Sheet when we consolidated the PEAKS Trust in our consolidated financial statements. See Note 16 – Commitments and Contingencies, for a further discussion of the PEAKS Guarantee.

We did not consolidate the PEAKS Trust in our consolidated financial statements as of December 31, 2012, because we concluded that we were not the primary beneficiary of the PEAKS Trust prior to February 28, 2013. We did, however, include the PEAKS Guarantee Receivable, net of accrued discount, and the contingent liability related to the PEAKS Guarantee in our consolidated financial statements as of December 31, 2012. We did not record a PEAKS Guarantee Receivable or a contingent liability related to the PEAKS Guarantee in our consolidated financial statements as of December 31, 2013. See Note 16 – Commitments and Contingencies, for a further discussion of those amounts.

We concluded that we became the primary beneficiary of the PEAKS Trust on February 28, 2013 and, therefore, were required to consolidate the PEAKS Trust in our consolidated financial statements. In accordance with ASC 810, the consolidation of the PEAKS Trust was treated as an acquisition of assets and liabilities and, therefore, the assets and liabilities of the PEAKS Trust were included in our consolidated financial statements at their fair value as of February 28, 2013. The following table sets forth the fair value of the assets and liabilities of the PEAKS Trust as of February 28, 2013 that were included on our Consolidated Balance Sheet on that date:

	As of February 28, 2013
	Assets		Liabilities
Restricted cash	$	1,703
PEAKS Trust student loans, less allowance for loan losses of $0		7,282
PEAKS Trust student loans, excluding current portion, less allowance for loan losses of $0		104,834
Current portion of PEAKS Trust senior debt			$	103,356
Other current liabilities				471
PEAKS Trust senior debt, excluding current portion				122,740
Total	$	113,819	$	226,567

The following table sets forth the carrying value of the assets and liabilities related to the PEAKS Program as of February 28, 2013 that we eliminated from our consolidated balance sheet when we consolidated the PEAKS Trust in our consolidated financial statements, and the line items within which those assets and liabilities were included:

	As of February 28, 2013
	Assets		Liabilities
Other assets	$	6,614
Other current liabilities			$	3,060
Other liabilities				43,054
Total	$	6,614	$	46,114

The fair value of the PEAKS Trust’s liabilities exceeded the fair value of the PEAKS Trust’s assets as of February 28, 2013 by $112,748. The amount of this excess was reduced by $39,500, which represented the net amount of the carrying value of the assets and liabilities related to the PEAKS Program that had been recorded in our consolidated financial statements as of February 28, 2013 and were eliminated upon the Consolidation. As a result, we recognized a total loss of $73,248 in our Consolidated Statement of Income for the year ended December 31, 2013 related to the Consolidation.

The following table sets forth the carrying values of assets and liabilities of the PEAKS Trust that were included on our Consolidated Balance Sheet as of December 31, 2013:

	As of December 31, 2013
	Assets		Liabilities
Restricted cash	$	2,593
PEAKS Trust student loans, less allowance for loan losses of $0		7,730
PEAKS Trust student loans, excluding current portion, less allowance for loan losses of $29,349		76,479
Current portion of PEAKS Trust senior debt			$	157,883
Other current liabilities				697
PEAKS Trust senior debt, excluding current portion				71,341
Total	$	86,802	$	229,921

The assets of the PEAKS Trust can only be used to satisfy the obligations of the PEAKS Trust. Payment of the administrative fees and expenses of the PEAKS Trust and the principal and interest owed on the PEAKS Senior Debt are guaranteed by us under the PEAKS Guarantee.

The following table sets forth the revenue and expenses of the PEAKS Trust, excluding the loss on consolidation of the PEAKS Trust, that were included in our Consolidated Statement of Income in the year ended December 31, 2013:

	Year Ended December 31, 2013
Revenue	$	12,996
Student services and administrative expenses		5,288
Provision for PEAKS Trust student loan losses		29,349
Interest expense		21,288
Income (loss) before provision for income taxes	$	(42,929	)

The revenue of the PEAKS Trust consists of interest income on the PEAKS Trust Student Loans, which is the accretion of the accretable yield on the PEAKS Trust Student Loans. The servicing, administrative and other fees incurred by the PEAKS Trust are included in Student services and administrative expenses in our Consolidated Statements of Income. The provision for PEAKS Trust student loan losses represents the increase in the allowance for loan losses that occurred during the period. The allowance for loan losses represents the difference between the carrying value and the total present value of the expected principal and interest collections of each loan pool of the PEAKS Trust Student Loans, discounted by the loan pool’s effective interest rate as of December 31, 2013. Interest expense of the PEAKS Trust represents interest expense on the PEAKS Senior Debt, which includes the contractual interest obligation and the accretion of the discount on the PEAKS Senior Debt.

Beginning in the fourth quarter of 2012 and continuing through January 2014, we made payments on behalf of certain student borrowers under the PEAKS Program to the PEAKS Trust to avoid defaults by those borrowers on their PEAKS Trust Student Loans (“Payments on Behalf of Borrowers”), which defaults would have triggered much larger contractually required payments by us under the PEAKS Guarantee. At the time we made Payments on Behalf of Borrowers, we believed that those payments were contractually permitted and a form of payment to the PEAKS Trust that would satisfy obligations that were contractually required. Since that time, however, we have determined that Payments on Behalf of Borrowers are not permitted or required to support the PEAKS Trust. If we had not made Payments on Behalf of Borrowers, we would have had to make contractually required payments under the PEAKS Guarantee in greater amounts. We made Payments on Behalf of Borrowers after assessing:

• the likelihood of us being contractually required to make payments under the PEAKS Guarantee in the near future;

• the effect on our liquidity that would result from making payments under the PEAKS Guarantee compared to making Payments on Behalf of Borrowers;

• the effect that Payments on Behalf of Borrowers may have on the funds available to the PEAKS Trust to repay the Subordinated Note to us following full payment of the PEAKS Trust’s other obligations; and

• the fact that we will not be able to recover Payments on Behalf of Borrowers from the PEAKS Trust or the student borrowers on whose behalf we made those payments.

Payments on Behalf of Borrowers assisted in:

• maintaining the ratio of assets of the PEAKS Trust to outstanding PEAKS Senior Debt at the required level (the “Asset/Liability Ratio”); and

• satisfying the following month’s required payment of interest on the PEAKS Senior Debt and administrative fees and expenses of the PEAKS Trust.

Prior to the Consolidation, Payments on Behalf of Borrowers were reflected on our financial statements as a reduction to our contingent liability accrual. Following the Consolidation, Payments on Behalf of Borrowers were not reflected on our financial statements, since those payments were intercompany transactions, which were eliminated from our financial statements as a result of the Consolidation.

The following table sets forth the guarantee payments and Payments on Behalf of Borrowers that were made related to the PEAKS Program in the periods indicated:

Type of Payment	January 1, 2013 Through February 28, 2013 (1)		March 1, 2013 Through December 31, 2013 (1)		Total Year Ended December 31, 2013		Year Ended December 31, 2012
PEAKS Guarantee	$	854	$	1,559	$	2,413	$	12,342
Payments on Behalf of Borrowers		532		10,967		11,499		2,762
Total	$	1,386	$	12,526	$	13,912	$	15,104

(1) We have provided separate columns showing the payment amounts prior to and after the Consolidation, because all transactions with the PEAKS Trust were eliminated from our consolidated financial statements after the Consolidation. Cash payments were, however, made by us throughout the periods indicated, including the periods after the Consolidation

In January 2014, we made Payments on Behalf of Borrowers of $1,832. In March 2014, we entered into a letter agreement, dated as of March 17, 2014, with the trustee under the PEAKS Program and the holders of the PEAKS Senior Debt (the “Letter Agreement”), in order to resolve differing interpretations of the permissibility of the Payments on Behalf of Borrowers under the PEAKS Program documents. Pursuant to the Letter Agreement, the trustee agreed to waive, and the holders of the PEAKS Senior Debt consented to the waiver of, any:

• breach of the PEAKS Program documents caused by us making Payments on Behalf of Borrowers, including any failure to make payments under the PEAKS Guarantee as a result thereof; and

• event of default under the PEAKS Program documents that may have arisen or resulted by us making Payments on Behalf of Borrowers.

In the Letter Agreement, we agreed, after the date of the Letter Agreement, not to make any further payments of any kind on behalf of any borrower in respect of a private education loan made under the PEAKS Program. In accordance with the terms of the Letter Agreement, we paid $40,000 on March 20, 2014, which is considered to be a payment under the PEAKS Guarantee and was applied primarily to make a mandatory prepayment of the PEAKS Senior Debt.

2009 Entity. On February 20, 2009, we entered into agreements with the 2009 Entity to create the 2009 Loan Program. Under the 2009 Loan Program, an unrelated lender originated private education loans to our eligible students and, subsequently, sold those loans to the 2009 Entity. The 2009 Entity purchased the private education loans from the lender utilizing funds received from its owners in exchange for participation interests in the private education loans acquired by the 2009 Entity. The lender disbursed the proceeds of the private education loans to us for application to the students’ account balances with us that represented their unpaid education costs. No new private education loans were or will be originated under the 2009 Loan Program after December 31, 2011, but immaterial amounts related to loans originated prior to that date were disbursed by the lender through June 2012.

In connection with the 2009 Loan Program, we entered into the 2009 RSA with the 2009 Entity. Under the 2009 RSA, we guarantee the repayment of any private education loans that are charged off above a certain percentage of the private education loans made under the 2009 Loan Program, based on the annual dollar volume. Under the 2009 RSA, we have an obligation to make the monthly payments due and unpaid on those private education loans that have been charged off above a certain percentage (“Regular Payments”). Instead of making Regular Payments, however, we may elect to:

• pay the then outstanding balance (plus accrued and unpaid interest) of those private education loans that have been charged off above a certain percentage and, with respect to which, an amount equal to at least ten monthly payments has been paid; or

• pay the then outstanding balance (plus accrued and unpaid interest) of those private education loans that have been charged off above a certain percentage and, with respect to which, an amount equal to at least ten monthly payments has not been paid, plus any interest that would otherwise have been payable until ten monthly payments had been made, discounted at the rate of 10% per annum

(collectively, “Discharge Payments”). We determined that the ability to make Discharge Payments as of December 31, 2013 did not give us the power to direct the activities that most significantly impacted the economic performance of the 2009 Entity and, therefore, did not change our conclusion that we were not the primary beneficiary of the 2009 Entity.

We are entitled to all amounts that the 2009 Entity recovers from loans in a particular loan pool made under the 2009 Loan Program that have been charged off, until all payments that we made under the 2009 RSA with respect to that loan pool have been repaid to us by the 2009 Entity. The following table sets forth the payments that we made to the 2009 Entity related to our guarantee obligations under the 2009 RSA and the amount of recoveries from charged-off loans paid to us by the 2009 Entity in the periods indicated:

	Year Ended December 31,
	2013			2012
Regular Payments	$	1,791		$	1,990
Discharge Payments		912			0
Recoveries from Charged-Off Loans		(103	)		(234	)
	$	2,600		$	1,756

In the fiscal year ended December 31, 2013, we also offset $9,091 owed by us under the 2009 RSA against amounts owed to us by the 2009 Entity under the Revolving Note, instead of making additional payments in that amount. See Note 16 – Commitments and Contingencies for a further discussion of the offset. Approximately $6,786 of the amount that we claimed as an offset against the Revolving Note represented Discharge Payments. We recorded all of the amounts claimed as offsets in Other current liabilities on our Consolidated Balance Sheet as of December 31, 2013. In the year ended December 31, 2013, the 2009 Entity did not remit to us $574 of recoveries from charged-off loans that were owed to us. We recorded all of the amounts owed to us from the 2009 Entity for recoveries from charged-off loans in Prepaid expenses and other current assets on our Consolidated Balance Sheet as of December 31, 2013. See Note 16 – Commitments and Contingencies, for a further discussion of the 2009 RSA. We determined that claiming an offset against the Revolving Note for Regular Payments or Discharge Payments did not give us the power to direct the activities that most significantly impacted the economic performance of the 2009 Entity as of and for the year ended December 31, 2013 and, therefore, did not change our conclusion that we were not the primary beneficiary of the 2009 Entity.

In addition, we have made advances to the 2009 Entity under the Revolving Note. We did not make any advances in the fiscal years ended December 31, 2013 or 2012 to the 2009 Entity under the Revolving Note that we were not contractually required to make. Certain of the assets of the 2009 Entity serve as collateral for the Revolving Note. The Revolving Note bears interest, is subject to customary terms and conditions and is currently due and payable in full. The advances under the Revolving Note were primarily used by the 2009 Entity to purchase additional private education loans under the 2009 Loan Program that otherwise may not have been originated. The period of time during which we could have made additional advances under the Revolving Note ended on January 1, 2014.

The amount owed to us under the Revolving Note, excluding the offsets described above, was approximately $8,200 as of December 31, 2013 and $8,300 as of December 31, 2012. In the three months ended December 31, 2012, we determined that circumstances indicated it was probable that we would not collect the full carrying value of the Revolving Note and, therefore, concluded that the Revolving Note was impaired. We recorded an impairment charge in the amount of $4,900, which equaled the amount that the carrying value of the Revolving Note exceeded the present value of the expected future cash flows from that note. The carrying value of the Revolving Note prior to recording the impairment charge was approximately $7,800. The carrying value of the Revolving Note was approximately $2,500 as of December 31, 2013 and $2,900 as of December 31, 2012, and was included on our Consolidated Balance Sheets in Prepaid expenses and other current assets as of December 31, 2013 and in Other assets as of December 31, 2012. We have not recognized any interest income related to the Revolving Note in our Consolidated Statements of Income during the time that the Revolving Note has been impaired.

XML

Income Taxes - Components of Provision for Income Taxes (Detail) (USD $) In Thousands, unless otherwise specified	3 Months Ended								12 Months Ended
	Dec. 31, 2013	Sep. 30, 2013	Jun. 30, 2013	Mar. 31, 2013	Dec. 31, 2012	Sep. 30, 2012	Jun. 30, 2012	Mar. 31, 2012	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011
Income Tax Disclosure [Abstract]
Current income tax expense, U.S. federal									$ 39,279	$ 126,585	$ 174,264
Current income tax expense, State and local									4,611	22,004	35,128
Total current income tax expense									43,890	148,589	209,392
Deferred income tax (benefit), U.S. federal									(46,345)	(51,145)	(6,718)
Deferred income tax (benefit), State and local									(7,757)	(8,426)	(1,427)
Total Deferred income tax (benefit)									(54,425)	(59,999)	(8,991)
Total provision (benefit) for income taxes	$ (14,396)	$ 3,336	$ 6,503	$ (5,655)	$ (7,740)	$ 26,747	$ 30,627	$ 39,384	$ (10,212)	$ 89,018	$ 201,247

XML

Employee Benefit Plans - Fair Value of Total Plan Assets by Major Asset Category (Detail) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011
Schedule of Pension Plan Assets by Fair Value [Line Items]
Fair value of plan assets	$ 76,710	$ 64,390	$ 58,839
(Level 1) Quoted Prices in Active Markets for Identical Assets [Member]
Schedule of Pension Plan Assets by Fair Value [Line Items]
Fair value of plan assets	76,710	64,390
(Level 2) Significant Other Observable Inputs [Member]
Schedule of Pension Plan Assets by Fair Value [Line Items]
Fair value of plan assets	0	0
(Level 3) Significant Unobservable Inputs [Member]
Schedule of Pension Plan Assets by Fair Value [Line Items]
Fair value of plan assets	0	0
Cash and cash equivalents [Member]
Schedule of Pension Plan Assets by Fair Value [Line Items]
Fair value of plan assets	934	1,078
Cash and cash equivalents [Member] | (Level 1) Quoted Prices in Active Markets for Identical Assets [Member]
Schedule of Pension Plan Assets by Fair Value [Line Items]
Fair value of plan assets	934	1,078
Cash and cash equivalents [Member] | (Level 2) Significant Other Observable Inputs [Member]
Schedule of Pension Plan Assets by Fair Value [Line Items]
Fair value of plan assets	0	0
Cash and cash equivalents [Member] | (Level 3) Significant Unobservable Inputs [Member]
Schedule of Pension Plan Assets by Fair Value [Line Items]
Fair value of plan assets	0	0
Fixed income securities [Member]
Schedule of Pension Plan Assets by Fair Value [Line Items]
Fair value of plan assets	12,596	17,318
Fixed income securities [Member] | (Level 1) Quoted Prices in Active Markets for Identical Assets [Member]
Schedule of Pension Plan Assets by Fair Value [Line Items]
Fair value of plan assets	12,596	17,318
Fixed income securities [Member] | (Level 2) Significant Other Observable Inputs [Member]
Schedule of Pension Plan Assets by Fair Value [Line Items]
Fair value of plan assets	0	0
Fixed income securities [Member] | (Level 3) Significant Unobservable Inputs [Member]
Schedule of Pension Plan Assets by Fair Value [Line Items]
Fair value of plan assets	0	0
Domestic large cap [Member] | Equity securities [Member]
Schedule of Pension Plan Assets by Fair Value [Line Items]
Fair value of plan assets	40,669	29,594
Domestic large cap [Member] | Equity securities [Member] | (Level 1) Quoted Prices in Active Markets for Identical Assets [Member]
Schedule of Pension Plan Assets by Fair Value [Line Items]
Fair value of plan assets	40,669	29,594
Domestic large cap [Member] | Equity securities [Member] | (Level 2) Significant Other Observable Inputs [Member]
Schedule of Pension Plan Assets by Fair Value [Line Items]
Fair value of plan assets	0	0
Domestic large cap [Member] | Equity securities [Member] | (Level 3) Significant Unobservable Inputs [Member]
Schedule of Pension Plan Assets by Fair Value [Line Items]
Fair value of plan assets	0	0
Mid cap value/growth [Member] | Equity securities [Member]
Schedule of Pension Plan Assets by Fair Value [Line Items]
Fair value of plan assets	12,610	9,090
Mid cap value/growth [Member] | Equity securities [Member] | (Level 1) Quoted Prices in Active Markets for Identical Assets [Member]
Schedule of Pension Plan Assets by Fair Value [Line Items]
Fair value of plan assets	12,610	9,090
Mid cap value/growth [Member] | Equity securities [Member] | (Level 2) Significant Other Observable Inputs [Member]
Schedule of Pension Plan Assets by Fair Value [Line Items]
Fair value of plan assets	0	0
Mid cap value/growth [Member] | Equity securities [Member] | (Level 3) Significant Unobservable Inputs [Member]
Schedule of Pension Plan Assets by Fair Value [Line Items]
Fair value of plan assets	0	0
Small cap value/growth [Member] | Equity securities [Member]
Schedule of Pension Plan Assets by Fair Value [Line Items]
Fair value of plan assets	7,163	5,137
Small cap value/growth [Member] | Equity securities [Member] | (Level 1) Quoted Prices in Active Markets for Identical Assets [Member]
Schedule of Pension Plan Assets by Fair Value [Line Items]
Fair value of plan assets	7,163	5,137
Small cap value/growth [Member] | Equity securities [Member] | (Level 2) Significant Other Observable Inputs [Member]
Schedule of Pension Plan Assets by Fair Value [Line Items]
Fair value of plan assets	0	0
Small cap value/growth [Member] | Equity securities [Member] | (Level 3) Significant Unobservable Inputs [Member]
Schedule of Pension Plan Assets by Fair Value [Line Items]
Fair value of plan assets	0	0
Foreign equities [Member] | Equity securities [Member]
Schedule of Pension Plan Assets by Fair Value [Line Items]
Fair value of plan assets	2,738	2,173
Foreign equities [Member] | Equity securities [Member] | (Level 1) Quoted Prices in Active Markets for Identical Assets [Member]
Schedule of Pension Plan Assets by Fair Value [Line Items]
Fair value of plan assets	2,738	2,173
Foreign equities [Member] | Equity securities [Member] | (Level 2) Significant Other Observable Inputs [Member]
Schedule of Pension Plan Assets by Fair Value [Line Items]
Fair value of plan assets	0	0
Foreign equities [Member] | Equity securities [Member] | (Level 3) Significant Unobservable Inputs [Member]
Schedule of Pension Plan Assets by Fair Value [Line Items]
Fair value of plan assets	$ 0	$ 0

XML

CONSOLIDATED STATEMENTS OF INCOME (unaudited) (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended								12 Months Ended
	Dec. 31, 2013	Sep. 30, 2013	Jun. 30, 2013	Mar. 31, 2013	Dec. 31, 2012	Sep. 30, 2012	Jun. 30, 2012	Mar. 31, 2012	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011
Income Statement [Abstract]
Revenue	$ 267,173	$ 259,617	$ 260,459	$ 285,062	$ 305,572	$ 313,791	$ 328,061	$ 339,209	$ 1,072,311	$ 1,286,633	$ 1,499,977
Costs and expenses:
Cost of educational services	118,432	120,204	123,541	124,176	129,394	133,948	140,067	134,941	486,353	538,350	553,065
Student services and administrative expenses	101,303	96,182	98,335	101,721	88,995	104,647	105,895	101,319	397,541	400,856	414,156
Asset impairment					15,166	0	0	0	0	15,166	0
Legal and other investigation costs	3,121	2,089	213	1,500	0	0	873	0	6,923	873	0
Loss related to loan program guarantees	82,335	4,826	0	3,803	88,970	5,095	3,906	3,054	90,964	101,025	23,500
Provision for PEAKS Trust student loan losses	8,648	16,382	4,319	0					29,349	0	0
Total costs and expenses									1,011,130	1,056,270	990,721
Operating income	(46,666)	19,934	34,051	53,862	(16,953)	70,101	77,320	99,895	61,181	230,363	509,256
(Loss) on consolidation of PEAKS Trust	0	0	0	(73,248)					(73,248)	0	0
Interest income	33	16	25	34	40	125	502	681	108	1,348	2,902
Interest (expense)	(7,144)	(7,190)	(7,369)	(3,574)	(901)	(1,021)	(1,254)	(547)	(25,277)	(3,723)	(1,825)
Income (loss) before provision for income taxes	(53,777)	12,760	26,707	(22,926)	(17,814)	69,205	76,568	100,029	(37,236)	227,988	510,333
Provision for income taxes	(14,396)	3,336	6,503	(5,655)	(7,740)	26,747	30,627	39,384	(10,212)	89,018	201,247
Net income (loss)	$ (39,381)	$ 9,424	$ 20,204	$ (17,271)	$ (10,074)	$ 42,458	$ 45,941	$ 60,645	$ (27,024)	$ 138,970	$ 309,086
Earnings (loss) per share:
Basic	$ (1.68)	$ 0.40	$ 0.86	$ (0.74)	$ (0.44)	$ 1.82	$ 1.96	$ 2.39	$ (1.15)	$ 5.82	$ 11.27
Diluted	$ (1.68)	$ 0.40	$ 0.80	$ (0.63)	$ (0.44)	$ 1.81	$ 1.95	$ 2.37	$ (1.15)	$ 5.79	$ 11.18
Weighted average shares outstanding:
Basic									23,412	23,880	27,429
Diluted									23,412	23,999	27,655

XML

Acquisitions

12 Months Ended

Dec. 31, 2013

Business Combinations [Abstract]

Acquisitions

4. Acquisitions

On August 1, 2013, we acquired all of the membership interests of Cable Holdings for $7,150 in cash, net of cash acquired. Cable Holdings is an education company that operates under the name of Benchmark Learning and offers short-term information technology and business learning solutions for career advancers and other professionals. The acquisition of Cable Holdings allowed us to immediately begin operating in the short-term learning solutions market, which we hope to expand upon by leveraging our current employer relationships, alumni and facilities, and integrating Cable Holdings’ operations into the Center for Professional Development @ ITT Technical Institute (the “CPD”).

Our consolidated financial statements include the results of Cable Holdings from the acquisition date. The revenue and expenses of Cable Holdings included in our Consolidated Statements of Income for the year ended December 31, 2013 were not material. Our revenue, net income and earnings per share would not have been materially affected, if the revenue and expenses of Cable Holdings were presented for the years ended December 31, 2013, 2012 and 2011 as if the transaction had occurred at the beginning of the earliest period presented. The costs incurred to acquire Cable Holdings were expensed and were not material.

We accounted for the acquisition of Cable Holdings in accordance with ASC 805, “Business Combinations” (“ASC 805”), which requires the use of the acquisition method of accounting for all business combinations. We considered the report of a third-party valuation firm in allocating the purchase price to identifiable net assets. The excess of the consideration paid over the estimated fair values of the identifiable net assets acquired was recognized as goodwill and is expected to be deductible for income tax purposes. The identifiable intangible assets acquired consist of customer relationships, non-compete agreements and training materials, which are being amortized over a weighted-average life of approximately five years. The estimated aggregate amortization expense in each of the next five succeeding fiscal years is not material.

The following table sets forth the estimated fair values to be allocated to the major classes of assets acquired and liabilities assumed in the Cable Holdings acquisition as of the acquisition date:

	Assets Acquired		Liabilities Assumed
Accounts receivable and other current assets	$	1,110
Furniture and equipment		480
Identifiable intangible assets		2,390
Goodwill		3,958
Accounts payable and other liabilities			$	788

On January 31, 2014, we acquired certain assets and assumed certain liabilities of CompetenC Solutions, Inc. and Great Equalizer, Inc. for approximately $5,186. CompetenC Solutions, Inc. and Great Equalizer, Inc. were education companies that operated primarily under the name of Ascolta and offered short-term information technology and business learning solutions for career advancers and other professionals. We acquired the Ascolta business to expand the CPD offerings in the short-term learning solutions market.

We will account for the acquisition of the Ascolta business in accordance with ASC 805. The purchase price has been preliminarily allocated to identifiable net assets. The excess of the consideration paid over the estimated fair values of the identifiable net assets acquired will be recognized as goodwill and is expected to be deductible for income tax purposes. The fair value of the identifiable intangible assets acquired is preliminary, pending receipt of the final valuation. The identifiable intangible assets acquired consist of customer relationships and non-compete agreements, which are expected to be amortized over an estimated weighted-average life of approximately five years.

The following table sets forth the estimated fair values allocated to the major classes of assets acquired and liabilities assumed in the Ascolta business acquisition as of the acquisition date:

	Assets Acquired		Liabilities Assumed
Accounts receivable and other current assets	$	849
Furniture and equipment		370
Identifiable intangible assets		1,670
Goodwill		3,332
Other current liabilities			$	1,035

The estimated fair values of the assets acquired and liabilities assumed in the Ascolta acquisition are preliminary and based on information that was available to us as of the acquisition date and as of the date of issuance of these financial statements. We may revise the allocation of the purchase price when we complete the final review of the information. We expect to finalize the purchase price allocation by October 31, 2014.

Our revenue, net income and earnings per share would not have been materially affected, if the revenue and expenses of the Ascolta business were presented for the years ended December 31, 2013, 2012 and 2011 as if the transaction had occurred at the beginning of the earliest period presented. The costs incurred to acquire the Ascolta business were expensed and were not material.

XML

New Accounting Guidance

12 Months Ended

Dec. 31, 2013

New Accounting Pronouncements [Abstract]

New Accounting Guidance

3. New Accounting Guidance

In May 2014, the FASB issued Accounting Standards Update (“ASU”) No. 2014-09, which is included in the Codification under ASC 606, “Revenue Recognition” (“ASC 606”). This guidance requires the recognition of revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration expected in exchange for those goods or services. This guidance will become effective for our interim and annual reporting periods beginning January 1, 2017. We have not completed our evaluation of the impact that this guidance may have on our consolidated financial statements.

In April 2014, the FASB issued ASU No. 2014-08, which is included in the Codification under ASC 205, “Presentation of Financial Statements” (“ASC 205”). This update changes the requirements for reporting discontinued operations and clarifies when disposals of groups of assets qualify for a discontinued operations presentation under ASC 205. This guidance will become effective for our interim and annual reporting periods beginning January 1, 2015, and will be applied to any transactions that meet those requirements beginning January 1, 2015.

In July 2013, the FASB issued ASU No. 2013-11, which is included in the Codification under ASC 740. This update provides guidance on the presentation of unrecognized tax benefits when net operating loss carryforwards, similar tax losses or tax credit carryforwards exist. This guidance became effective for our interim and annual reporting periods beginning January 1, 2014. The adoption of this guidance did not have a material impact on our consolidated financial statements.

In February 2013, the FASB issued ASU No. 2013-02, which is included in the Codification under ASC 220, “Other Comprehensive Income” (“ASC 220”). This update requires an entity to report the effect, by component, of significant reclassifications out of accumulated other comprehensive income on the respective line items in net income. This guidance was effective for our interim and annual reporting periods beginning January 1, 2013. The adoption of this guidance requires us to provide additional disclosures regarding the amounts reclassified out of accumulated other comprehensive income during a reporting period. We have included these disclosures in the footnotes to our consolidated financial statements. The adoption of this guidance did not have a material impact on our consolidated financial statements

In October 2012, the FASB issued ASU No. 2012-04, which makes technical corrections, clarifications and limited-scope improvements to various topics throughout the Codification. The amendments in this ASU that do not have transition guidance were effective upon issuance, and the amendments that are subject to transition guidance were effective for our interim and annual reporting periods beginning January 1, 2013. The adoption of this guidance did not have a material impact on our consolidated financial statements.

In July 2012, the FASB issued ASU No. 2012-02, which is included in the Codification under ASC 350, “Intangibles – Goodwill and Other” (“ASC 350”). This update allows an entity to first assess qualitative factors to determine whether it must perform a quantitative impairment test. An entity would be required to calculate the fair value of an indefinite-lived intangible asset, if the entity determines, based on a qualitative assessment, that it is more likely than not that the indefinite-lived intangible asset is impaired. This guidance was effective for impairment tests performed for our interim and annual reporting periods beginning January 1, 2013. The adoption of this guidance did not have a material impact on our consolidated financial statements.

In December 2011, the FASB issued ASU No. 2011-11, which is included in the Codification under ASC 210, “Balance Sheet” (“ASC 210”). This update provides for enhanced disclosures to help users of financial statements evaluate the effect or potential effect of netting arrangements on an entity’s financial position. In January 2013, the FASB issued ASU No. 2013-01, which clarified the scope of the disclosures required under ASU No. 2011-11. Both of these updates were effective for our interim and annual reporting periods beginning January 1, 2013. The adoption of this guidance did not have a material impact on our consolidated financial statements.

XML

Employee Benefit Plans

12 Months Ended

Dec. 31, 2013

Compensation and Retirement Disclosure [Abstract]

Employee Benefit Plans

15. Employee Benefit Plans

Employee Pension Benefits. Our ESI Pension Plan, a non-contributory defined benefit pension plan, commonly referred to as a cash balance plan, covers substantially all of our employees who began their employment with us prior to June 2, 2003. This plan provides benefits based on an employee’s annual earnings times an established percentage of pay determined by the employee’s age and years of benefit service. Effective June 2, 2003, we closed participation in the ESI Pension Plan to all new employees. Employees who begin their employment with us on or after June 2, 2003 do not participate in the ESI Pension Plan.

Our ESI Excess Pension Plan, a nonqualified, unfunded retirement plan, covers a select group of our management. The purpose of the ESI Excess Pension Plan is to restore benefits earned, but not available, to eligible employees under the ESI Pension Plan due to federal statutory limitations on the amount of benefits that can be paid and compensation that may be recognized under a tax-qualified retirement plan.

The benefit accruals under the ESI Pension Plan and the ESI Excess Pension Plan for all participants in those plans were frozen effective March 31, 2006, such that no further benefits accrue under those plans after March 31, 2006. Participants in those plans, however, continue to be credited with vesting service and interest according to the terms of the ESI Pension Plan and the ESI Excess Pension Plan.

The information presented below is based on an actuarial valuation date as of December 31 for 2013 and 2012.

The following table sets forth the change in projected benefit obligation for the periods indicated:

	Year Ended December 31,
	2013			2012
Projected benefit obligation at beginning of year	$	57,246		$	54,485
Service cost		0			0
Actuarial (gain) loss		(5,345	)		3,180
Interest cost		1,756			2,062
Benefits paid		(4,245	)		(2,481	)
Plan amendments		0			0
Projected benefit obligation at end of year	$	49,412		$	57,246
Fair value of plan assets at end of year		76,710			64,390
Funded status at end of year	$	27,298		$	7,144

Our accumulated benefit obligation was $49,412 at December 31, 2013 and $57,246 at December 31, 2012.

The following table sets forth the funded status of our defined benefit plans that was recognized on our Consolidated Balance Sheets as of the dates indicated:

	As of December 31,
	2013			2012
Non-current assets	$	27,584		$	7,459
Non-current (liabilities)		(286	)		(315	)
Total	$	27,298		$	7,144

The weighted-average assumptions used to determine benefit obligations as of December 31, 2013 and 2012 are as follows:

	2013			2012
Discount rate		4.25	%		3.25	%
Rate of compensation increase		N/A			N/A

The following table sets forth the change in the fair value of plan assets for the periods indicated:

	Year Ended December 31,
	2013			2012
Fair value of plan assets at beginning of year	$	64,390		$	58,839
Actual return on plan assets		16,565			8,032
Employer contributions		0			0
Benefits paid		(4,245	)		(2,481	)
Fair value of plan assets at end of year	$	76,710		$	64,390

The following tables set forth the fair value of total plan assets by major asset category as of the dates indicated:

	Fair Value Measurements as of December 31, 2013
Asset Category	Total		(Level 1) Quoted Prices in Active Markets for Identical Assets		(Level 2) Significant Other Observable Inputs		(Level 3) Significant Unobservable Inputs
Cash and cash equivalents	$	934	$	934	$	0	$	0
Fixed income securities (a)		12,596		12,596		0		0
Equity securities:
Domestic large cap		40,669		40,669		0		0
Mid cap value/growth (a)		12,610		12,610		0		0
Small cap value/growth (a)		7,163		7,163		0		0
Foreign equities		2,738		2,738		0		0
Total	$	76,710	$	76,710	$	0	$	0

^(a)  Mutual funds.

	Fair Value Measurements as of December 31, 2012
Asset Category	Total		(Level 1) Quoted Prices in Active Markets for Identical Assets		(Level 2) Significant Other Observable Inputs		(Level 3) Significant Unobservable Inputs
Cash and cash equivalents	$	1,078	$	1,078	$	0	$	0
Fixed income securities (a)		17,318		17,318		0		0
Equity securities:
Domestic large cap		29,594		29,594		0		0
Mid cap value/growth (a)		9,090		9,090		0		0
Small cap value/growth (a)		5,137		5,137		0		0
Foreign equities		2,173		2,173		0		0
Total	$	64,390	$	64,390	$	0	$	0

^(a)  Mutual funds.

We used quoted prices in active markets for identical assets as of the measurement dates to value our plan assets that were categorized as Level 1.

The following table sets forth the amounts in Accumulated other comprehensive loss on our Consolidated Balance Sheets that have not been recognized as components of net periodic pension benefit cost as of the dates indicated:.

	As of December 31,
	2013			2012
Net actuarial (loss)	($	546	)	($	20,191	)
Prior service credit		5,578			7,133
Total accumulated other comprehensive income (loss)	$	5,032		($	13,058	)
Income tax benefit (expense)		(1,886	)		5,128
Total accumulated other comprehensive income (loss), net of tax	$	3,146		($	7,930	)

The following table sets forth the changes in the components of Accumulated other comprehensive loss on our Consolidated Balance Sheet in the fiscal year ended December 31, 2013:

	Defined Benefit Pension Items
	Accumulated Other Comprehensive Income (Loss)			Income Tax Benefit (Expense)			Accumulated Other Comprehensive Income (Loss) Net of Income Tax
Balance at January 1, 2013	($	13,058	)	$	5,128		($	7,930	)
Net actuarial gain		17,566			(6,811	)		10,755
Settlement gain		42			(17	)		25
Amortization of:
Actuarial (gains)/losses		2,037			(790	)		1,247
Prior service costs/(credits)		(1,555	)		604			(951	)
Balance at December 31, 2013	$	5,032		($	1,886	)	$	3,146

The reclassification of prior service costs or credits, actuarial gains or losses and settlement gain from Accumulated other comprehensive loss are included in the computation of net periodic pension benefit cost (income). Net periodic pension benefit cost (income) was included in compensation expense in Cost of educational services and Student services and administrative expenses in our Consolidated Statements of Income in the fiscal year ended December 31, 2013.

The following table sets forth the components of net periodic pension benefit (income) in the periods indicated:

	Year Ended December 31,
	2013			2012			2011
Interest cost	$	1,756		$	2,062		$	2,405
Expected return on assets		(4,344	)		(4,231	)		(4,756	)
Recognized net actuarial loss		2,037			2,718			1,803
Amortization of prior service (credit) cost		(1,555	)		(1,555	)		(1,555	)
Settlement loss		42			792			1,204
Total net periodic pension benefit (income)	($	2,064	)	($	214	)	($	899	)

The benefit accruals under the ESI Pension Plan and ESI Excess Pension Plan were frozen effective March 31, 2006. As a result, no service cost has been included in the net periodic pension benefit income.

The following table sets forth the amounts related to changes in plan assets and projected benefit obligations that were recognized in other comprehensive (income) loss in the periods indicated:

	Year Ended December 31,
	2013			2012			2011
Net actuarial (gain) loss	($	17,566	)	($	621	)	$	9,504
Amortization of net actuarial loss		(2,037	)		(2,718	)		(1,803	)
Prior service cost (credit)		0			0			0
Amortization of prior service cost (credit)		1,555			1,555			1,555
Settlement		(42	)		(792	)		(1,204	)
Other comprehensive (income) loss	($	18,090	)	($	2,576	)	$	8,052
Total recognized in net periodic pension benefit (income) and other comprehensive (income) loss	($	20,154	)	($	2,790	)	$	7,153

The amortization of any prior service cost is determined using a straight-line amortization of the cost over the average remaining service period for employees expected to receive benefits under the pension plans. The estimated net actuarial loss that is expected to be amortized from accumulated other comprehensive income and recognized in net periodic pension benefit cost for the year ended December 31, 2014 is $0 and the estimated prior service credit that is expected to be amortized from accumulated other comprehensive income and recognized in net periodic pension benefit cost for the year ended December 31, 2014 is $1,555.

The weighted-average assumptions used to determine net periodic pension benefit cost in the years ended December 31, 2013, 2012 and 2011 are as follows:

	2013			2012			2011
Discount rate		3.25	%		4.00	%		5.00	%
Expected long-term return on plan assets		7.00	%		7.50	%		8.00	%
Rate of compensation increase		N/A			N/A			N/A

The following table sets forth the benefit payments that we expect to pay from the pension plans in the periods indicated:

Year	Amount
Fiscal 2014	$	3,576
Fiscal 2015	$	3,464
Fiscal 2016	$	4,315
Fiscal 2017	$	4,896
Fiscal 2018	$	3,538
Fiscal 2019 – 2023	$	16,838

We invest plan assets based on a total return on investment approach, pursuant to which the plan assets include a diversified blend of equity and fixed income investments toward a goal of maximizing the long-term rate of return without assuming an unreasonable level of investment risk. We determine the level of risk based on an analysis of plan liabilities, the extent to which the value of the plan assets satisfies the plan liabilities and our financial condition. Our investment policy includes target allocations ranging from 30% to 70% for equity investments, 20% to 60% for fixed income investments and 0% to 50% for cash equivalents. Actual asset allocations may vary from the targeted allocations for various reasons, including market conditions and the timing of transactions. The equity portion of the plan assets represents growth and value stocks of small, medium and large companies. We measure and monitor the investment risk of the plan assets both on a quarterly basis and annually when we assess plan liabilities.

We use a building block approach to estimate the long-term rate of return on plan assets. This approach is based on the capital market principle that the greater the volatility, the greater the return over the long term. An analysis of the historical performance of equity and fixed income investments, together with current market factors such as the inflation and interest rates, are used to help us make the assumptions necessary to estimate a long-term rate of return on plan assets. Once this estimate is made, we review the portfolio of plan assets and make adjustments thereto that we believe are necessary to reflect a diversified blend of equity and fixed income investments that is capable of achieving the estimated long-term rate of return without assuming an unreasonable level of investment risk. We also compare the portfolio of plan assets to those of other pension plans to help us assess the suitability and appropriateness of the plan investments.

We determine our discount rate by performing a yield curve analysis based on a portfolio of high-quality fixed income investments with various maturities. Our expected future benefit payments are discounted to their present value at the appropriate yield curve rate to generate the overall discount rate for pension obligations.

In 2013 and 2012, we made no contributions to the ESI Excess Pension Plan or the ESI Pension Plan. We do not expect to make any contributions to either the ESI Pension Plan or the ESI Excess Pension Plan in 2014.

Retirement Savings Plan. Our ESI 401(k) Plan, a defined contribution plan, covers substantially all of our employees. All of our contributions under the ESI 401(k) Plan are in the form of cash to plan investment options directed by the participant.

On July 1, 2013, we changed the rate at which we made contributions to the ESI 401(k) Plan on behalf of our employees. Prior to July 1, 2013, we contributed 100% of the first 1% and 50% of the next 4% of an employee’s salary that the employee contributed to his or her ESI 401(k) Plan account. Beginning July 1, 2013, we contribute 50% of the first 6% of an employee’s salary that the employee contributes to his or her ESI 401(k) Plan account.

Our ESI Excess Savings Plan, a nonqualified, unfunded deferred compensation plan, covers a select group of our management. The plan provided for salary deferral of contributions that the participants were unable to make under the ESI 401(k) Plan and our contributions that could not be paid under the ESI 401(k) Plan due to federal statutory limits on the amount that an employee could contribute under a defined contribution plan. Effective for plan years beginning on and after January 1, 2008, we froze the ESI Excess Savings Plan, such that employees may no longer make salary deferrals and we will no longer make contributions under the ESI Excess Savings Plan. Amounts previously credited to an employee under the ESI Excess Savings Plan will, however, continue to accrue interest in accordance with the terms of the ESI Excess Savings Plan, until those amounts are distributed pursuant to the plan’s terms.

The costs of providing the benefits under the ESI 401(k) Plan and ESI Excess Savings Plan (including certain administrative costs of the plans) were:

• $3,454 in the year ended December 31, 2013;

• $4,597 in the year ended December 31, 2012; and

• $5,308 in the year ended December 31, 2011.

XML

PEAKS Trust Student Loans

12 Months Ended

Dec. 31, 2013

Student Loans [Abstract]

PEAKS Trust Student Loans

11. PEAKS Trust Student Loans

We concluded that we were required to consolidate the PEAKS Trust in our consolidated financial statements beginning on February 28, 2013. See Note 10 – Variable Interest Entities, for a further discussion of the Consolidation. As a result, the assets and liabilities of the PEAKS Trust were included on our Consolidated Balance Sheet as of December 31, 2013. The PEAKS Trust Student Loans are included in the line items related to the PEAKS Trust Student Loans on our Consolidated Balance Sheet.

A significant number of the PEAKS Trust Student Loans were determined to be credit impaired upon consolidation. Loans determined to be credit impaired upon consolidation or acquisition (“Purchased Credit Impaired Loans” or “PCI Loans”), are initially measured at fair value in accordance with ASC 310-30, “Receivables – Loans and Debt Securities Acquired with Deteriorated Credit Quality” (“ASC 310-30”). A loan is considered a PCI Loan, if it has evidence of deteriorated credit quality following the loan’s origination date. As a result, at the date of consolidation or acquisition, it is probable that all contractually required payments under a PCI Loan will not be collected.

The PEAKS Trust Student Loans that did not individually have evidence of deteriorated credit quality at the time of consolidation were also initially measured at fair value and are accounted for in accordance with ASC 310-30. We believe that following the guidance of ASC 310-30 by analogy with respect to those loans provides the most reasonable presentation of the value of those loans, primarily due to:

• the evidence of deteriorated credit quality of a significant number of the PEAKS Trust Student Loans; and

• the probability that all contractually required payments with respect to those loans will not be collected.

All of the PEAKS Trust Student Loans are, therefore, considered to be, and reported as, PCI Loans.

This accounting treatment is consistent with the Confirmation Letter, in which the AICPA summarized the SEC staff’s view regarding the accounting in subsequent periods for discount accretion associated with loan receivables acquired in a business combination or asset purchase. In this letter, the AICPA states that it understands that the SEC staff will not object to an accounting policy based on contractual or expected cash flow. We believe that following ASC 310-30 by analogy with respect to the PEAKS Trust Student Loans that did not individually have evidence of deteriorated credit quality at the time of consolidation is an appropriate application of the accounting guidance to determine the initial measurement of the value of those loans.

PCI Loans recognized upon consolidation or acquisition in the same fiscal quarter may be aggregated into one or more pools, provided that the PCI Loans in each pool have common risk characteristics. The PEAKS Trust Student Loans were considered to be PCI Loans upon consolidation and were aggregated into 24 separate pools of loans, based on common risk characteristics of the loans, which included:

• the fiscal quarter in which the PEAKS Trust Student Loan was originated; and

• the consumer credit score of the borrower.

PCI Loans that do not have evidence of deteriorated credit quality are not aggregated in the same pools with PCI Loans that have evidence of deteriorated credit quality. The same aggregation criteria, however, were used to determine those loan pools. Each loan pool is accounted for as a single asset with a single composite interest rate and an aggregate expectation of cash flows.

Upon the Consolidation on February 28, 2013, the PEAKS Trust Student Loans were recorded at their estimated fair value. The estimated fair value of the PEAKS Trust Student Loans as of February 28, 2013 was determined using an expected cash flow methodology. Projected default rates and forbearances were considered in applying the estimated cash flow methodology. Prepayments of loans were not considered when estimating the expected cash flows, because, historically, few PEAKS Trust Student Loans have been prepaid. No allowance for loan loss was established as of February 28, 2013, because all of the PEAKS Trust Student Loans were recorded at fair value and future credit losses are considered in the estimate of fair value.

The following table sets forth the estimated fair value, accretable yield and expected cash flows for the PEAKS Trust Student Loans, in total and for those loans pursuant to which ASC 310-30 was applied by analogy, as of the date indicated:

	As of February 28, 2013
	Total		ASC 310-30 Applied By Analogy
Estimated fair value	$	112,116	$	60,177
Accretable yield	$	100,953	$	58,843
Expected cash flows	$	213,069	$	119,020

The excess of any cash flows expected to be collected with respect to a loan pool of the PEAKS Trust Student Loans over the carrying value of the loan pool is referred to as the accretable yield. The accretable yield is not reported on our Consolidated Balance Sheets, but it is accreted and included as interest income using the effective interest method, which is at a level rate of return over the remaining estimated life of the loan pool.

The contractually required future principal and interest payments for all PEAKS Trust Student Loans outstanding at February 28, 2013 totaled approximately $487,800. The contractually required future principal and interest payments for the PEAKS Trust Student Loans outstanding at February 28, 2013 pursuant to which ASC 310-30 was applied by analogy totaled approximately $213,600. The excess of the contractually required payments of the PEAKS Trust Student Loans over the expected cash flows is referred to as the nonaccretable difference. As of February 28, 2013, the nonaccretable difference was approximately $274,700 for all outstanding PEAKS Trust Student Loans and approximately $94,600 for those outstanding PEAKS Trust Student Loans pursuant to which ASC 310-30 was applied by analogy.

On a quarterly basis subsequent to February 28, 2013, we estimate the principal and interest expected to be collected over the remaining life of each loan pool. These estimates include assumptions regarding default rates, forbearances and other factors that reflect then-current market conditions. Prepayments of loans were not considered when estimating the expected cash flows, because, historically, few PEAKS Trust Student Loans have been prepaid.

If a decrease in the expected cash flows of a loan pool is probable and would cause the expected cash flows to be less than the expected cash flows at the date of the Consolidation or the end of the previous fiscal quarter, whichever is later, we would record the impairment as:

• a provision for PEAKS Trust student loan losses in our Consolidated Statement of Income; and

• an increase in the allowance for loan losses on our Consolidated Balance Sheet.

The provision for PEAKS Trust student loan losses represents the increase in the allowance for loan losses that occurred during the period. The allowance for loan losses is the difference between the carrying value and the total present value of the expected principal and interest collections of each loan pool, discounted by the loan pool’s effective interest rate at the date of the Consolidation or the end of the previous fiscal quarter, whichever is later. If a significant increase in the expected cash flows of a loan pool is probable and would cause the expected cash flows to be greater than the expected cash flows at the date of Consolidation or the end of the previous fiscal quarter, whichever is later, we would:

• first reverse any allowance for loan losses with respect to that loan pool that was previously recorded on our Consolidated Balance Sheet, up to the amount of that allowance; and

• record any remaining increase prospectively as a yield adjustment over the remaining estimated lives of the loans in the loan pool.

The following table sets forth information regarding changes in the allowance for loan losses of the loan pools of the PEAKS Trust Student Loans in the aggregate in the period indicated:

	Year Ended December 31,
	2013
Balance as of February 28, 2013	$	0
Loans charged off		0
Recoveries from charged off loans		0
Provision for loan losses		29,349
Balance as of December 31, 2013	$	29,349

Adjustments to the interest income of a loan pool are recognized prospectively, if those adjustments are due to:

• changes in variable interest rates; or

• any other changes in the timing of the expected cash flows of the loan pools.

Modifications were made to PCI Loans in each of the fiscal quarters in 2013 and were primarily due to forbearances granted with respect to the payment of those loans. We consider the impact of any modifications made to PCI Loans as part of our quarterly assessment of whether:

• a probable and significant change in the expected cash flows of the PCI Loans has occurred; and

• the loans should continue to be accounted for and reported as PCI loans.

In evaluating the impact of modifications made to PCI Loans on the expected cash flows of those loans, we consider the effect of any foregone interest and the potential for future default. These default estimates are used to calculate expected credit losses with respect to each loan pool. In developing these probabilities of default estimates, we considered the relationship between the credit quality characteristics of the loans in the loan pool and certain assumptions based on the performance history of the PEAKS Trust Student Loans and industry data related to the severity and recovery lag of defaults applicable to private education loans. Loans for which Payments on Behalf of Borrowers were made were assumed to be defaulted loans in our default estimates. Forbearances have been granted with respect to the payment of approximately 25% of the PEAKS Trust Student Loans.

The charge off of a PCI Loan results in the removal of that loan from the underlying PCI Loan pool and reduces the loan pool discount. If the discount for principal losses for a particular PCI Loan pool has been fully depleted, the charge off of a PCI Loan will reduce the PCI Loan pool’s allowance for loan losses. Removal of a PCI Loan from the underlying PCI Loan Pool does not change the effective yield of the PCI Loan Pool.

As of December 31, 2013, the outstanding balance of the PEAKS Trust Student Loans, including accrued interest, was approximately $279,400. The carrying amount of the PEAKS Trust Student Loans included under the line items related to the PEAKS Trust Student Loans on our Consolidated Balance Sheet was $84,209 as of December 31, 2013. The PEAKS Trust Student Loans were not included on our Consolidated Balance Sheets prior to February 28, 2013.

The following table sets forth information regarding aggregate changes in accretable yield of the loan pools of the PEAKS Trust Student Loans, in total and for those loans pursuant to which ASC 310-30 was applied by analogy, for the period indicated:

	Year Ended December 31, 2013
	Total			ASC 310-30 Applied By Analogy
Balance as of January 1	$	0		$	0
Additions resulting from the Consolidation		100,953			58,843
Accretion		(12,996	)		(7,243	)
Reclassification from nonaccretable difference and changes in expected cash flows		(17,377	)		(9,326	)
Balance as of December 31	$	70,580		$	42,274

XML

Income Taxes - Activity with Respect to Unrecognized Tax Benefits (Detail) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011
Income Tax Disclosure [Abstract]
Beginning Balance	$ 20,690	$ 22,050	$ 22,888
Tax positions taken during a prior period	1,675	195	1,042
Tax positions taken during the current period	870	759	2,434
Settlements with taxing authorities	186	(1,027)	(2,487)
Lapse of statute of limitations	(1,130)	(1,287)	(1,827)
Ending Balance	$ 22,291	$ 20,690	$ 22,050

XML

Equity Compensation Plans

12 Months Ended

Dec. 31, 2013

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Equity Compensation Plans

7. Equity Compensation Plans

We have adopted the following equity compensation plans, referred to collectively as the “Plans”:

• ITT Educational Services, Inc. Amended and Restated 2006 Equity Compensation Plan – On May 7, 2013, our shareholders approved the ITT Educational Services, Inc. Amended and Restated 2006 Equity Compensation Plan (the “Amended 2006 Plan”). Prior to May 7, 2013, we adopted and our shareholders approved the 2006 ITT Educational Services, Inc. Equity Compensation Plan (the “Original 2006 Plan”). Awards may be granted to our employees and directors under the Amended 2006 Plan in the form of stock options (incentive and nonqualified), stock appreciation rights (“SARs”), restricted stock, RSUs, performance shares, performance units and other stock-based awards as defined in the plan. The Amended 2006 Plan increased the maximum number of shares of our common stock that may be issued pursuant to awards under the plan to 7,350,000, an increase of 3,350,000 over the 4,000,000 maximum under the Original 2006 Plan. Each share underlying stock options and SARs granted and not forfeited or terminated, reduces the number of shares available for future awards by one share. The delivery of a share in connection with a “full-value award” (i.e., an award of restricted stock, RSUs, performance shares, performance units or any other stock-based award with value denominated in shares) reduces the number of shares remaining for other awards by two shares. As of December 31, 2013, restricted stock, RSUs and nonqualified stock options have been awarded under this plan.

• 1999 Outside Directors Stock Option Plan – A maximum of 500,000 shares of our common stock were available to be issued upon the exercise of nonqualified stock options granted to non-employee directors under the 1999 Outside Directors Stock Option Plan (“1999 Directors Stock Plan”).

• 1997 ITT Educational Services, Inc. Incentive Stock Plan – A maximum of 8,100,000 shares of our common stock were available to be issued upon the exercise of stock options and pursuant to other forms of awards under the 1997 ITT Educational Services, Inc. Incentive Stock Plan (“1997 Stock Plan”), but no more than 20% of the total number of shares on a cumulative basis could have been used for restricted stock or performance share awards. A maximum of 1.5% of our outstanding shares of common stock could have been issued annually, with any unissued shares available to be issued in later years.

No additional awards have been or will be granted after May 9, 2006 under the 1999 Directors Stock Plan or the 1997 Stock Plan. All awards outstanding as of December 31, 2013 under the 1999 Directors Stock Plan and the 1997 Stock Plan will expire in 2014.

The stock-based compensation expense and related income tax benefit recognized in our Consolidated Statements of Income in the periods indicated were as follows:

	Year Ended December 31,
	2013			2012			2011
Stock-based compensation expense	$	11,638		$	16,658		$	17,074
Income tax (benefit)	($	4,481	)	($	6,414	)	($	6,574	)

We did not capitalize any stock-based compensation cost in the years ended December 31, 2013, 2012 and 2011.

As of December 31, 2013, we estimated that pre-tax compensation expense for unvested stock-based compensation grants in the amount of approximately $13,900, net of estimated forfeitures, will be recognized in future periods. This expense will be recognized over the remaining service period applicable to the grantees which, on a weighted-average basis, is approximately 2.0 years.

Stock Options. Under the Plans, the stock option exercise price may not be less than 100% of the fair market value of our common stock on the date of grant. The maximum term of any stock option granted under the Amended 2006 Plan and Original 2006 Plan may not exceed seven years from the date of grant, and those stock options will be exercisable at such times and under conditions as determined by the Compensation Committee of our Board of Directors, subject to the limitations contained in the plan. All stock options awarded under the Amended 2006 Plan and Original 2006 Plan typically vest and become exercisable in three equal installments commencing with the first anniversary of the date of grant.

Under the 1999 Directors Stock Plan, the stock options granted typically vested and became exercisable on the first anniversary of the grant. The maximum term of any stock option granted under the 1999 Directors Stock Plan was: (a) 10 years from the date of grant for any stock options granted prior to January 25, 2005; and (b) seven years from the date of grant for any stock options granted on or after January 25, 2005.

Under the 1997 Stock Plan, the stock options granted typically vested and became exercisable in three equal annual installments commencing with the first anniversary of the date of grant. The maximum term of any stock option granted under the 1997 Stock Plan was 10 years and two days from the date of grant.

The stock options granted, forfeited, exercised and expired in the period indicated were as follows:

	Year Ended December 31, 2013
				Weighted					Weighted
				Average		Aggregate			Average	Aggregate
	# of			Exercise		Exercise			Remaining	Intrinsic
	Shares			Price		Price			Contractual Term	Value (1)
Outstanding at beginning of period		1,574,604		$	84.90	$	133,691
Granted		156,500		$	19.55		3,059
Forfeited		(16,668	)	$	75.11		(1,252	)
Exercised		0		$	0.00		0
Expired		(381,988	)	$	69.48		(26,543	)
Outstanding at end of period		1,332,448		$	81.77	$	108,955		2.4 years	$	2,198
Exercisable at end of period		1,040,443		$	92.28	$	96,016		2.1 years	$	0

(1) The aggregate intrinsic value of the stock options was calculated by identifying those stock options that had a lower exercise price than the closing market price of our common stock on December 31, 2013 and multiplying the difference between the closing market price of our common stock and the exercise price of each of those stock options by the number of shares subject to those stock options that were outstanding or exercisable, as applicable.

The following table sets forth information regarding the stock options granted and exercised in the periods indicated:

	Year Ended December 31,
	2013		2012		2011
Shares subject to stock options granted		156,500		156,500		159,500
Weighted average grant date fair value	$	9.27	$	31.36	$	28.90
Shares subject to stock options exercised		0		202,820		118,410
Intrinsic value of stock options exercised	$	0	$	4,802	$	3,095
Proceeds received from stock options exercised	$	0	$	8,345	$	5,599
Tax benefits realized from stock options exercised	$	0	$	1,602	$	1,190

The intrinsic value of a stock option is the difference between the fair market value of the stock and the option exercise price. The fair value of each stock option grant was estimated on the date of grant using the following assumptions:

	Year Ended December 31,
	2013			2012			2011
Risk-free interest rates		0.7	%		0.7	%		1.8	%
Expected lives (in years)		4.6			4.5			4.7
Volatility		60	%		51	%		48	%
Dividend yield		None			None			None

Restricted Stock Units. Under the Amended 2006 Plan and Original 2006 Plan, RSUs awarded are subject to a restriction period of at least: (a) for awards made prior to November 24, 2010, three years in the case of a time-based period of restriction and one year in the case of a performance-based period of restriction; and (b) for awards made after November 24, 2010, one year. All RSUs awarded under the Amended 2006 Plan and Original 2006 Plan that were not vested as of December 31, 2013 have a time-based restriction period that ranges from ending on the first to the third anniversary of the date of grant.

The following table sets forth the number of RSUs that were granted, forfeited and vested in the period indicated:

	Year Ended December 31, 2013
	# of RSUs			Weighted Average Grant Date Fair Value
Unvested at beginning of period		413,645		$	75.35
Granted		522,014		$	19.98
Forfeited		(129,327	)	$	46.72
Vested		(68,488	)	$	88.60
Unvested at end of period		737,844		$	39.96

The total fair market value of the RSUs that vested and were settled in shares of our common stock was $1,241 in the year ended December 31, 2013, $4,568 in the year ended December 31, 2012 and $2,454 in the year ended December 31, 2011. Also, in the year ended December 31, 2012, 48,935 RSUs vested and were settled in cash for $3,073.

XML

Equity Compensation Plans - Number of Restricted Stock Units (RSUs) Granted, Forfeited and Vested (Detail) (USD $)	12 Months Ended
	Dec. 31, 2013
Number of RSUs
Number of RSUs, Unvested at beginning of period	413,645
Number of RSUs, Granted	522,014
Number of RSUs, Forfeited	(129,327)
Number of RSUs, Vested	(68,488)
Number of RSUs, Unvested at end of period	737,844
Weighted Average Grant Date Fair Value
Weighted Average Grant Date Fair Value, Unvested at beginning of period	$ 75.35
Weighted Average Grant Date Fair Value, Granted	$ 19.98
Weighted Average Grant Date Fair Value, Forfeited	$ 46.72
Weighted Average Grant Date Fair Value, Vested	$ 88.60
Weighted Average Grant Date Fair Value, Unvested at end of period	$ 39.96

XML

Fair Value and Credit Risk of Financial Instruments

12 Months Ended

Dec. 31, 2013

Fair Value Disclosures [Abstract]

Fair Value and Credit Risk of Financial Instruments

5. Fair Value and Credit Risk of Financial Instruments

Fair value for financial reporting is defined as the price that would be received upon the sale of an asset or paid upon the transfer of a liability in an orderly transaction between market participants at the measurement date. The fair value measurement of our financial assets utilized assumptions categorized as observable inputs under the accounting guidance. Observable inputs are assumptions based on independent market data sources.

The following table sets forth information regarding the recurring fair value measurement of our financial assets as reflected on our Consolidated Balance Sheet as of December 31, 2013:

			Fair Value Measurements at Reporting Date Using
Description	As of December 31, 2013		(Level 1) Quoted Prices in Active Markets for Identical Assets		(Level 2) Significant Other Observable Inputs		(Level 3) Significant Unobservable Inputs
Cash equivalents:
Money market fund	$	214,985	$	214,985	$	0	$	0
Restricted cash:
Money market fund		2,433		2,433		0		0
Other assets:
Money market fund		8,626		8,626		0		0
	$	226,044	$	226,044	$	0	$	0

The following table sets forth information regarding the recurring fair value measurement of our financial assets as reflected on our Consolidated Balance Sheet as of December 31, 2012:

			Fair Value Measurements at Reporting Date Using
Description	As of December 31, 2012		(Level 1) Quoted Prices in Active Markets for Identical Assets		(Level 2) Significant Other Observable Inputs		(Level 3) Significant Unobservable Inputs
Cash equivalents:
Money market fund	$	151,784	$	151,784	$	0	$	0
Restricted cash:
Money market fund		2,877		2,877		0		0
Other assets:
Money market fund		8,622		8,622		0		0
	$	163,283	$	163,283	$	0	$	0

We used quoted prices in active markets for identical assets as of the measurement dates to value our financial assets that were categorized as Level 1.

The carrying amounts for cash and cash equivalents, restricted cash, accounts receivable, accounts payable, and other current liabilities approximate fair value because of the immediate or short-term maturity of these financial instruments. We did not have any financial assets or liabilities recorded at estimated fair value on a non-recurring basis in our Consolidated Balance Sheets as of December 31, 2013 or 2012.

As of December 31, 2013, the carrying value of the PEAKS Trust Student Loans was approximately $84,209. The estimated fair value of the PEAKS Trust Student Loans was approximately $99,100 as of December 31, 2013. The fair value of the PEAKS Trust Student Loans was estimated using the income approach with estimated discounted expected cash flows. We utilized inputs that were unobservable in determining the estimated fair value of the PEAKS Trust Student Loans. The significant inputs used in determining the estimated fair value included the default rate, repayment rate and discount rate. Fair value measurements that utilize significant unobservable inputs are categorized as Level 3 measurements under the accounting guidance.

Each of the carrying value and the estimated fair value of the notes receivable and other receivables included in Prepaid expenses and other current assets or Other assets on our Consolidated Balance Sheet was approximately $2,500 as of December 31, 2013 and approximately $9,600 as of December 31, 2012. We estimated the fair value of the notes receivable and other receivables by discounting the future cash flows using current rates for similar arrangements. The assumptions used in this estimate are considered unobservable inputs. Fair value measurements that utilize significant unobservable inputs are categorized as Level 3 measurements under the accounting guidance.

Each of the carrying value and the estimated fair value of our debt under our credit agreement was approximately $50,000 as of December 31, 2013 and $140,000 as of December 31, 2012. The fair value of our debt under our credit agreement was estimated by discounting the future cash flows using current rates for similar loans with similar characteristics and remaining maturities. We utilized inputs that were observable or were principally derived from observable market data to estimate the fair value of our debt under our credit agreement. Fair value measurements that utilize significant other observable inputs are categorized as Level 2 measurements under the accounting guidance.

As of December 31, 2013, the carrying value of the PEAKS Senior Debt was approximately $229,224. The estimated fair value of the PEAKS Senior Debt was approximately $239,400 as of December 31, 2013. The fair value of the PEAKS Senior Debt was estimated using the income approach with estimated discounted cash flows. We utilized inputs that were unobservable in determining the estimated fair value of the PEAKS Senior Debt. The significant input used in determining the estimated fair value was the discount rate utilized for both credit and liquidity purposes. Fair value measurements that utilize significant unobservable inputs are categorized as Level 3 measurements under the accounting guidance.

Financial instruments that potentially subject us to credit risk consist primarily of accounts receivable, interest-bearing investments, notes receivable and the PEAKS Trust Student Loans. There is no concentration of credit risk of our accounts receivable, as the total is comprised of a large number of individual balances owed by students whose credit profiles vary and who are located throughout the United States. Our interest-bearing investments and cash equivalents generally consist of high-quality securities issued by various entities and major financial institutions. Certain of the assets of the party to whom we issued one of the notes receivable serve as collateral for the repayment of the note. The PEAKS Trust Student Loans consist of a large number of individual loans owed by borrowers, whose credit profiles vary and who are located throughout the United States.

XML

Financial Aid Programs

12 Months Ended

Dec. 31, 2013

Text Block [Abstract]

Financial Aid Programs

6. Financial Aid Programs

We participate in various Title IV Programs of the HEA. In 2013, in the aggregate, our institutions derived approximately 82% of their applicable revenue from funds distributed under those Title IV Programs, as determined on a cash accounting basis under the calculation of the provision of the HEA commonly referred to as the “90/10 Rule.”

We administer the Title IV Programs in separate accounts as required by government regulation. We are required to administer the funds in accordance with the requirements of the HEA and the ED’s regulations and must use due diligence in approving and disbursing funds. In the event we do not comply with federal requirements, or if student loan default rates rise to a level considered excessive by the federal government, we could lose our eligibility to participate in Title IV Programs or could be required to repay funds determined to have been improperly disbursed. Our management believes that we are in substantial compliance with the federal requirements.

XML

Stock Repurchases

12 Months Ended

Dec. 31, 2013

Equity [Abstract]

Stock Repurchases

8. Stock Repurchases

As of December 31, 2013, approximately 7.8 million shares remained available for repurchase under the share repurchase program (the “Repurchase Program”) authorized by our Board of Directors. The terms of the Repurchase Program provide that we may repurchase shares of our common stock, from time to time depending on market conditions and other considerations, in the open market or through privately negotiated transactions in accordance with Rule 10b-18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Unless earlier terminated by our Board of Directors, the Repurchase Program will expire when we repurchase all shares authorized for repurchase thereunder.

The following table sets forth information regarding the shares of our common stock that we repurchased in the periods indicated:

	Year Ended December 31,
	2013		2012
Number of shares		0		3,025,700
Total cost	$	0	$	207,918
Average cost per share	$	0	$	68.72

XML

Earnings (Loss) Per Common Share - Additional Information (Detail) In Millions, unless otherwise specified	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011
Earnings Per Share [Abstract]
Shares excluded from calculation of diluted earnings per share	1.4	1.7	1.1

XML

Employee Benefit Plans - Change in Projected Benefit Obligation (Detail) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011
Compensation and Retirement Disclosure [Abstract]
Projected benefit obligation at beginning of year	$ 57,246	$ 54,485
Service cost	0	0
Actuarial (gain) loss	(5,345)	3,180
Interest cost	1,756	2,062	2,405
Benefits paid	(4,245)	(2,481)
Plan amendments	0	0
Projected benefit obligation at end of year	49,412	57,246	54,485
Fair value of plan assets at end of year	76,710	64,390	58,839
Funded status at end of year	$ 27,298	$ 7,144

XML

Variable Interest Entities - Schedule of Carrying Value of Assets and Liabilities of PEAKS Trust (Detail) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2013	Feb. 28, 2013	Dec. 31, 2012
Variable Interest Entity [Line Items]
Restricted cash	$ 5,636		$ 3,478
PEAKS Trust student loans, less allowance for loan losses of $0	7,730		0
PEAKS Trust student loans, excluding current portion, less allowance for loan losses of $0	76,479		0
Total assets	806,851	6,614	675,204
Current portion of PEAKS Trust senior debt	157,883		0
Other current liabilities	42,136	3,060	106,796
PEAKS Trust senior debt, excluding current portion	71,341		0
Total	691,205	46,114	549,439
PEAKS Trust Student Loans [Member]
Variable Interest Entity [Line Items]
Restricted cash	2,593	1,703
PEAKS Trust student loans, less allowance for loan losses of $0	7,730	7,282
PEAKS Trust student loans, excluding current portion, less allowance for loan losses of $0	76,479	104,834	0
Total assets	86,802	113,819
Current portion of PEAKS Trust senior debt	157,883	103,356
Other current liabilities	697	471
PEAKS Trust senior debt, excluding current portion	71,341	122,740
Total	$ 229,921	$ 226,567

XML

Commitments and Contingencies - Aggregate Amount of Guarantee Payments, Discharge Payments and Payments on Behalf of Borrowers (Detail) (USD $) In Thousands, unless otherwise specified	2 Months Ended	10 Months Ended	12 Months Ended
	Feb. 28, 2013	Dec. 31, 2013	Dec. 31, 2013	Dec. 31, 2012
Schedule of Claims and Contingencies [Line Items]
Payments on Behalf of Borrowers			$ 11,499	$ 2,762
Recoveries from Charged-Off Loans			103	234
PEAKS Program [Member]
Schedule of Claims and Contingencies [Line Items]
PEAKS Guarantee	854	1,559	2,413	12,342
Payments on Behalf of Borrowers	532	10,967	11,499	2,762
Total	1,386	12,526	13,912	15,104
2009 RSA [Member]
Schedule of Claims and Contingencies [Line Items]
Regular Payments			1,791	1,990
Discharge Payments			912	0
Recoveries from Charged-Off Loans			(103)	(234)
Risk Share Agreement [Member]
Schedule of Claims and Contingencies [Line Items]
Payments on Behalf of Borrowers	532	10,967	11,499	2,762
Total	1,386	12,526	16,512	16,860
Risk Share Agreement [Member] | PEAKS Program [Member]
Schedule of Claims and Contingencies [Line Items]
PEAKS Guarantee	854	1,559	2,413	12,342
Risk Share Agreement [Member] | 2009 RSA Regular Payments [Member]
Schedule of Claims and Contingencies [Line Items]
Regular Payments	0	0	1,791	1,990
Risk Share Agreement [Member] | 2009 RSA Discharge Payments [Member]
Schedule of Claims and Contingencies [Line Items]
Discharge Payments	0	0	912	0
Risk Share Agreement [Member] | 2009 RSA [Member]
Schedule of Claims and Contingencies [Line Items]
Recoveries from Charged-Off Loans	$ 0	$ 0	$ (103)	$ (234)

XML

Earnings (Loss) Per Common Share - Historical Net Income and Weighted Average Number of Shares of Common Stock Outstanding (Detail) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011
Earnings Per Share [Abstract]
Weighted average number of shares of common stock outstanding	23,412	23,880	27,429
Shares assumed issued (less shares assumed purchased for treasury) for stock-based compensation		119	226
Outstanding shares for diluted earnings (loss) per share calculation	23,412	23,999	27,655

XML

Employee Benefit Plans - Schedule of Changes in Components of Accumulated Other Comprehensive Loss (Detail) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011
Compensation and Retirement Disclosure [Abstract]
Accumulated Other Comprehensive Income (Loss) Before Tax - Beginning Balance	$ (13,058)
Net actuarial gain	17,566	621	(9,504)
Settlement gain	42	792	1,204
Actuarial (gains)/losses	2,037	2,718	1,803
Prior service costs/(credits)	(1,555)	(1,555)	(1,555)
Accumulated Other Comprehensive Income (Loss) Before Tax - Ending Balance	5,032	(13,058)
Balance at January 1, 2013	5,128
Net actuarial gain	(6,811)	(242)	(3,709)
Settlement gain	(17)	(309)	(470)
Actuarial (gains)/losses	(790)	(1,062)	(704)
Prior service costs/(credits)	604
Balance at December 31, 2013	(1,886)	5,128
Balance at January 1, 2013	(7,930)
Net actuarial gain	10,755	379	(5,795)
Settlement gain	25	483	734
Actuarial (gains)/losses	1,247	1,656	1,099
Prior service costs/(credits)	(951)	(948)	(948)
Balance at December 31, 2013	$ 3,146	$ (7,930)

XML

Stock Repurchases (Tables)

12 Months Ended

Dec. 31, 2013

Equity [Abstract]

Information Regarding Shares of Common Stock Repurchased

The following table sets forth information regarding the shares of our common stock that we repurchased in the periods indicated:

	Year Ended December 31,
	2013		2012
Number of shares		0		3,025,700
Total cost	$	0	$	207,918
Average cost per share	$	0	$	68.72

XML

Acquisitions - Summary of Estimated Fair Values Allocated to Major Classes of Assets Acquired and Liabilities Assumed (Detail) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2013
Cable Holdings [Member] | Assets Acquired [Member]
Business Acquisition [Line Items]
Accounts receivable and other current assets	$ 1,110
Furniture and equipment	480
Identifiable intangible assets	2,390
Goodwill	3,958
Cable Holdings [Member] | Liabilities Assumed [Member]
Business Acquisition [Line Items]
Accounts receivable and other current assets
Furniture and equipment
Identifiable intangible assets
Goodwill
Accounts payable and other liabilities	788
Ascolta [Member] | Assets Acquired [Member]
Business Acquisition [Line Items]
Accounts receivable and other current assets	849
Furniture and equipment	370
Identifiable intangible assets	1,670
Goodwill	3,332
Ascolta [Member] | Liabilities Assumed [Member]
Business Acquisition [Line Items]
Other current liabilities	$ 1,035

XML

Debt

12 Months Ended

Dec. 31, 2013

Debt Disclosure [Abstract]

Debt

13. Debt

On March 21, 2012, we entered into a credit agreement (the “Credit Agreement”) that provided for a $325,000 senior revolving credit facility. We entered into amendments to the Credit Agreement on March 31, 2014, May 29, 2014, June 30, 2014 (the “Third Amendment”), July 30, 2014 (the “Fourth Amendment”) and September 15, 2014 (the “Fifth Amendment”), and we entered into a Consent to Credit Agreement, which is effective upon the delivery by us to the lenders of our audited consolidated financial statements included in this filing (the “Consent”). The Credit Agreement, as so amended and including the Consent, is referred to herein as the “Amended Credit Agreement.” The Amended Credit Agreement has a maturity date of March 21, 2015.

A portion of the borrowings under the Credit Agreement were used to prepay the entire outstanding indebtedness under a prior credit agreement which was terminated on March 21, 2012. In addition to the prepayment of the outstanding indebtedness under the prior credit agreement, borrowings under the Amended Credit Agreement are used for general corporate purposes.

Under the Amended Credit Agreement, the aggregate commitment of the lenders, effective June 30, 2014, is reduced to $135,000, and the portion of the commitments available for letters of credit is increased from $25,000 to $85,000. Certain letters of credit in an aggregate amount of approximately $2,352 previously issued by JPMorgan Chase Bank, N.A. are deemed to be letters of credit issued pursuant to the Amended Credit Agreement. If we have not caused the issuance of a letter of credit payable to the ED (“ED Letter of Credit”) by November 15, 2014, the aggregate commitments of the lenders will be reduced to $100,000. In addition, the commitments of the lenders under the Amended Credit Agreement will be reduced to the extent that borrowings are repaid by us using proceeds from certain types of transactions specified in the Fourth Amendment and the Fifth Amendment, as described further below.

Borrowings under the Amended Credit Agreement bear interest, at our option, at the London Interbank Offered Rate (“LIBOR”) plus an applicable margin or at an alternative base rate, as defined under the Amended Credit Agreement, plus an applicable margin. The applicable margin for borrowings under the Amended Credit Agreement is determined based on the ratio of our total Indebtedness (as defined in the Amended Credit Agreement and which primarily includes outstanding borrowings, recorded contingent liabilities related to our guarantee obligations, letters of credit and surety bonds) to EBITDA (as defined in the Amended Credit Agreement) (the “Leverage Ratio”) as of the end of each fiscal quarter. We also pay a commitment fee on the amount of the unutilized commitments under the Amended Credit Agreement. The amount of the commitment fee is determined based on the Leverage Ratio as of the end of each quarter. The effective interest rate on our borrowings was approximately:

• 3.60% per annum in the year ended December 31, 2013;

• 2.40% per annum in the year ended December 31, 2012; and

• 1.20% per annum in the year ended December 31, 2011.

The commitment fee under the Amended Credit Agreement was 0.40% as of December 31, 2013.

We recognized interest expense and fees (including the facility fee and commitment fee) on our borrowings under the Amended Credit Agreement or the prior credit agreement, as applicable, of $3,424 in the year ended December 31, 2013, $3,303 in the year ended December 31, 2012 and $1,825 in the year ended December 31, 2011.

In addition to the participation fee required to be paid by us pursuant to the original terms of the Credit Agreement related to letters of credit, which accrues at the same rate used to determine the interest rate applicable to Eurodollar Revolving Loans (as defined in the Amended Credit Agreement), the Fifth Amendment provides that an additional participation fee is required to be paid by us related to the ED Letter of Credit, which will accrue at a ticking fee rate on the average daily amount of the lenders’ letter of credit exposure with respect to the ED Letter of Credit. The ticking fee rate is defined as:

• 0.00% per annum for the period from September 15, 2014 through and including March 21, 2015;

• 1.00% per annum for the period from March 22, 2015 through and including March 21, 2016;

• 2.00% per annum for the period from March 22, 2016 through and including March 21, 2017;

• 3.00% per annum for the period from March 22, 2017 through and including March 21, 2018;

• 4.00% per annum for the period from March 22, 2018 through and including March 21, 2019; and

• 5.00% per annum for the period from March 22, 2019 through November 15, 2019.

The Amended Credit Agreement contains, among other things, covenants, representations and warranties and events of default customary for credit facilities. We are required to maintain compliance with a maximum Leverage Ratio, a minimum fixed charge coverage ratio, a minimum liquidity amount, and several covenants related to the ED’s regulations. We were in compliance with those covenants as of December 31, 2013, after giving effect to the Third Amendment and the Fourth Amendment. The Third Amendment provides that noncompliance with the Leverage Ratio as of the end of the fiscal quarters ending March 31, 2013, June 30, 2013 and September 30, 2013, and noncompliance with the fixed charge coverage ratio as of the end of the fiscal quarters ending March 31, 2013, June 30, 2013, September 30, 2013, and December 31, 2013 (in each case, before giving effect to the Third Amendment) have been waived by the lenders. In addition, among other things, the Third Amendment, the Fourth Amendment, the Fifth Amendment and the Consent, taken together:

• provided that our consolidated financial statements (and related certificates) as of and for the fiscal year ended December 31, 2013, did not have to be furnished by us to the lenders until October 15, 2014;

• provide that our condensed consolidated financial statements (and related certificates) as of and for the fiscal quarter ended March 31, 2014, do not have to be furnished by us to the lenders until November 15, 2014;

• provide that our condensed consolidated financial statements (and related certificates) as of and for the fiscal quarter ended June 30, 2014, do not have to be furnished by us to the lenders until November 15, 2014;

• provide that our condensed consolidated financial statements (and related certificates) as of and for the fiscal quarter ended September 30, 2014, do not have to be furnished by us to the lenders until December 15, 2014;

• amend certain covenants to allow for the Consolidation beginning on February 28, 2013, and for other factors; and

• waive certain defaults related to our financial reporting.

The Amended Credit Agreement:

• is secured by a pledge of the equity interests of our subsidiaries;

• is guaranteed by one of our subsidiaries;

• is secured by security interests in substantially all of our personal property and the personal property of the subsidiary guarantor; and

• is secured by mortgages on 30 separate parcels of land owned by us, including all of the improvements thereto and fixtures thereon (the “Mortgaged Property”).

The Fourth Amendment provides that an event of default under the Amended Credit Agreement will occur, if, among other things, the ED imposes a delay of more than five days in our receipt of Title IV Program funds. The Fifth Amendment provides that an event of default under the Amended Credit Agreement will occur if, among other things, we do not engage a financial advisor acceptable to the administrative agent before November 15, 2014 (or another date not later than December 15, 2014, if acceptable to the administrative agent). Based on our discussions with the administrative agent, we understand that the financial advisor would be retained to assist us in our ongoing efforts to identify and secure alternative financing.

The Fifth Amendment provides that the ED Letter of Credit will not be issued unless we have previously delivered certain real estate due diligence items related to the Mortgaged Property. In addition, the Fifth Amendment allows for the ED Letter of Credit, if issued, to have a term ending not later than November 15, 2019.

Under the Amended Credit Agreement, we are required to provide cash collateral (in an amount equal to 109% of the face amount of the ED Letter of Credit and 103% of the face amount of all other letters of credit) for any letter of credit issued under the Amended Credit Agreement:

• after July 30, 2014, immediately upon issuance, except for the ED Letter of Credit, for which cash collateral is not required, until the earlier of December 31, 2014 or when net cash proceeds are received from certain transactions described in the next paragraph; and

• before July 30, 2014, by the earlier of December 31, 2014 or when net cash proceeds are received from certain transactions described in the next paragraph.

All amounts posted as cash collateral for letters of credit will be treated as cash for purposes of determining our compliance with the minimum liquidity covenant of the Amended Credit Agreement.

Under the Fourth Amendment and the Fifth Amendment, in the event that any net cash proceeds are received by us or a material subsidiary of ours in connection with any sale, transfer, lease or other disposition of the Mortgaged Property, including in connection with any sale and leaseback transaction, any mortgage financing or similar transaction with respect to the Mortgaged Property or the incurrence by us of indebtedness that is not permitted under the Amended Credit Agreement, those net cash proceeds will:

• first, be delivered to the administrative agent in order to cash collateralize all then outstanding letters of credit under the Amended Credit Agreement, until such time as the administrative agent holds cash collateral equal to 109% of the face amount of the ED Letter of Credit and 103% of the face amount of all other letters of credit, or if the ED Letter of Credit has not yet been issued when the net cash proceeds are received, to be held by the administrative agent until the issuance of the ED Letter of Credit and application of the proceeds to cash collateral; and

• second, be used to repay outstanding borrowings under the Amended Credit Agreement, which repayments will be accompanied by a corresponding pro rata reduction of the commitment of each lender under the Amended Credit Agreement.

The Fourth Amendment also implements additional restrictions on us, including, without limitation:

• the exception to the limitation on asset dispositions not otherwise permitted under the Amended Credit Agreement is reduced from $75,000 in the aggregate during the term of the Amended Credit Agreement to $5,000 in the aggregate during the period from July 30, 2014 through the remaining term of the Amended Credit Agreement, and all of those asset dispositions must be for fair market value and an adequate cash purchase consideration, as reasonably determined by the administrative agent, provided that those limitations do not apply to an asset disposition of the Mortgaged Property, if that asset disposition generates net cash proceeds of at least 75% of the appraised value of that Mortgaged Property;

• in addition to the existing limitation on sale and leaseback transactions that the net cash proceeds received therefrom may not exceed $125,000 in the aggregate during the term of the Amended Credit Agreement, any sale and leaseback transaction must be for fair market value and an adequate cash purchase consideration, as reasonably determined by the administrative agent, provided that any sale and leaseback transaction of the Mortgaged Property will be deemed to be for fair market value and an adequate cash purchase consideration, if it generates net cash proceeds of at least 75% of the appraised value of that Mortgaged Property;

• the permitted indebtedness consisting of secured indebtedness at any time outstanding (and not otherwise permitted by the Amended Credit Agreement) is reduced from $25,000 to $5,000 in aggregate principal amount; and

• permitted liens to secure indebtedness, obligations and/or liabilities at any one time outstanding (which liens are not otherwise permitted by the Amended Credit Agreement) may not secure debt in excess of $5,000 in aggregate principal amount, reduced from the original $25,000.

If any collateral is sold in a transaction permitted under the Amended Credit Agreement or is financed by indebtedness permitted under the Amended Credit Agreement, the administrative agent will release the mortgage or other security interest in that collateral.

As of December 31, 2013, the outstanding borrowings under the Amended Credit Agreement totaled $50,000 and were classified as a current liability, because we believed it was probable that we would not be in compliance with certain covenants under the Amended Credit Agreement during the 12 months following December 31, 2013.

If we are not in compliance with one or more covenants and are unable to obtain a waiver of our noncompliance or an amendment to the Amended Credit Agreement that would allow us to be in compliance with those covenants or otherwise not be in default under the Amended Credit Agreement, the lenders would have various remedies, including:

• the lending commitments under the Amended Credit Agreement may be terminated;

• our ability to request the issuance of letters of credit and to obtain amendments, extensions or renewals of letters of credit already issued under the Amended Credit Agreement may be terminated;

• all then outstanding borrowings and other amounts owed under the Amended Credit Agreement may be declared immediately due and payable; and

• we could be required to provide cash collateral (in an amount equal to 109% of the face amount of the ED Letter of Credit and 103% of the face amount of all other letters of credit) for our obligations with respect to any outstanding letters of credit, if that cash collateral has not already been posted.

In the event that we or our subsidiary guarantor do not pay in full, upon demand, all of our outstanding borrowings and other amounts owed under the Amended Credit Agreement or we, or our subsidiary guarantor, do not provide, upon demand, the cash collateral for our letter of credit obligations, the lenders would be entitled to recourse against the collateral security, including the Mortgaged Property, that we and our subsidiary guarantor have provided, in order to obtain payment of amounts we owe or are required to provide as cash collateral.

For the period February 28, 2013 through December 31, 2013, our consolidated financial statements consolidate the PEAKS Trust. See Note 10 – Variable Interest Entities, for a further discussion of the Consolidation. In January 2010, the PEAKS Trust issued PEAKS Senior Debt in the aggregate principal amount of $300,000 to investors. The PEAKS Senior Debt matures in January 2020 and bears interest at a variable rate based on the LIBOR, plus a 550 basis point margin. The minimum LIBOR rate applied to the PEAKS Senior Debt cannot be less than 2.00%. There are no scheduled principal repayment requirements for the PEAKS Senior Debt prior to the January 2020 maturity date. Under the terms of the PEAKS Program documents, however, amounts received on a monthly basis by the PEAKS Trust that exceed the fees and expenses of the PEAKS Trust then due and the interest then due on the PEAKS Senior Debt are to be paid to reduce the outstanding principal balance of the PEAKS Senior Debt. We estimate that the amount received in 2014 by the PEAKS Trust from PEAKS Trust Student Loan borrowers that could be used to reduce the outstanding principal balance of the PEAKS Senior Debt, will not be material. The assets of the PEAKS Trust (which include, among other assets, the PEAKS Trust Student Loans) serve as collateral for, and are intended to be the principal source of, the repayment of the PEAKS Senior Debt. Payment of the PEAKS Senior Debt may be accelerated by the indenture trustee of the PEAKS Trust or by the holders of the PEAKS Senior Debt in response to certain events of default under the indenture under the PEAKS Program (the “PEAKS Indenture”), including, among other things:

• a payment default by the PEAKS Trust;

• a default in the performance or observation of the PEAKS Trust’s covenants, agreements or conditions under the PEAKS Indenture;

• a breach of our obligations under the PEAKS Guarantee; and

• certain bankruptcy events with respect to the PEAKS Trust or us.

An acceleration of the payment of the PEAKS Senior Debt would result in an acceleration of our obligation to pay the full amount of the PEAKS Senior Debt pursuant to the terms of the PEAKS Guarantee, if the PEAKS Trust was not able to make that payment (and we believe that it is unlikely that the PEAKS Trust would be able to make that payment). The acceleration of our obligation to pay the full amount of the PEAKS Senior Debt, and/or our inability to make that payment, could result in cross-defaults under the Amended Credit Agreement.

The PEAKS Trust must maintain a minimum required Asset/Liability Ratio. The minimum required Asset/Liability Ratio is 1.05/1.00. The applicable required Asset/Liability Ratio as of each monthly measurement date, however, is based on our compliance, as of the prior quarterly measurement date, with certain metrics specified in the PEAKS Program documents, including maximum leverage ratios and minimum liquidity amounts. If we are not in compliance with those metrics as of the end of a fiscal quarter, the required Asset/Liability Ratio increases to 1.40/1.00, until the monthly measurement date following the end of a succeeding quarter at which we are in compliance with those metrics. As a result of the Consolidation and other factors, we were not in compliance with those metrics as of December 31, 2013. We do not expect to be in compliance with those metrics prior to December 31, 2014.

If the amount of the assets of the PEAKS Trust does not equal or exceed the outstanding PEAKS Senior Debt by the applicable required Asset/Liability Ratio on a monthly measurement date, we are required to make a payment under the PEAKS Guarantee in an amount that would reduce the outstanding principal balance of the PEAKS Senior Debt to the extent necessary to cause the ratio of the assets of the PEAKS Trust to the resulting outstanding PEAKS Senior Debt to equal or exceed the applicable required Asset/Liability Ratio. See Note 16 – Commitments and Contingencies, for a further discussion of the PEAKS Guarantee.

As a consequence of the restatement of our unaudited condensed consolidated financial statements in our Quarterly Reports on Form 10-Q for the fiscal quarters ended March 31, 2013, June 30, 2013 and September 30, 2013, certain quarterly reports that we were required to deliver to the indenture trustee of the PEAKS Trust under the PEAKS Guarantee were inaccurate. We delivered corrected quarterly reports to the indenture trustee on October 9, 2014. If we had delivered accurate quarterly reports or, with respect to periods in 2014 through June 30, 2014, delivered quarterly reports, to the indenture trustee of the PEAKS Trust, we believe the indenture trustee would have made payment demands beginning in April 2013, requiring us to make additional payments under the PEAKS Guarantee totaling $60,340, in the aggregate, in order to maintain an Asset/Liability Ratio of 1.40/1.00. On October 9, 2014, we made a guarantee payment of $50,000, which payment, along with other payments that we have made to the PEAKS Trust in recent months, included amounts that would have become due between April 2013 and September 2014, had we delivered accurate quarterly reports. The delivery of inaccurate quarterly reports constituted a breach of the PEAKS Guarantee and an event of default under the PEAKS Indenture. In the event of a default under the PEAKS Indenture, the payment of the entire amount of the PEAKS Senior Debt could be accelerated, which would trigger our obligation to pay the full amount of the PEAKS Senior Debt pursuant to our obligations under the PEAKS Guarantee, additional remedies could be sought against us and there could be a cross-default under the Amended Credit Agreement, any of which would have a material adverse effect on our results of operations, financial condition and cash flows. We believe that the delivery of the corrected quarterly reports and making the additional guarantee payments satisfied our obligations under the PEAKS Guarantee with respect to these matters and cured the event of default under the PEAKS Indenture. We cannot predict, however, whether the holders of the PEAKS Senior Debt will assert other breaches of the PEAKS Guarantee by us or assert that any breach of the PEAKS Guarantee or event of default under the PEAKS Indenture was not properly cured.

We estimate that we have and will make payments under the PEAKS Guarantee totaling approximately $159,500 in the year ending December 31, 2014 to cause the PEAKS Trust to maintain the applicable required Asset/Liability Ratio. That estimated amount includes the:

• $40,000 that we paid in March 2014 pursuant to the Letter Agreement, which was applied primarily to make a mandatory prepayment of the PEAKS Senior Debt (see Note 10 – Variable Interest Entities, for a further discussion of the Letter Agreement);

• payments totaling approximately $51,700 that we made from July 2014 through September 2014 to satisfy our obligations under the PEAKS Guarantee with respect to the increased minimum required Asset/Liability Ratio in prior periods; and

• $50,000 that we paid in October 2014, as described in the immediately preceding paragraph.

As of December 31, 2013, the outstanding principal balance of the PEAKS Senior Debt was approximately $255,600 and the carrying value was $229,224. We recorded $157,883 as a current liability as of December 31, 2013, which represented our estimate of the amount of the carrying value that would have been due in the 12 months following December 31, 2013 after giving consideration to the effects of the restatement, as described above. The PEAKS Senior Debt was recorded on our consolidated balance sheet as of February 28, 2013 at its estimated fair value on that date, which was approximately $226,096. The outstanding principal balance of the PEAKS Senior Debt as of February 28, 2013 was $257,533. The $31,437 difference between the estimated fair value and the outstanding principal balance of the PEAKS Senior Debt as of February 28, 2013 was recorded as an accrued discount on our consolidated balance sheet and will be recognized as Interest expense in our Consolidated Statements of Income using an effective interest rate method over the term of the PEAKS Senior Debt. The effective interest rate on the PEAKS Senior Debt was approximately 9.90% per annum in the year ended December 31, 2013. We recognized interest expense on the PEAKS Senior Debt of $21,288 in the year ended December 31, 2013, which included $4,926 of discount accretion.

The following table sets forth the estimated principal payments on the PEAKS Senior Debt in the periods indicated:

Fiscal Year	Amount
2014	$	161,219
2015	$	16,699
2016	$	7,618
2017	$	8,194
2018	$	8,909
2019 - 2020	$	51,393

XML

SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS

12 Months Ended

Dec. 31, 2013

Valuation and Qualifying Accounts [Abstract]

SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS

ITT EDUCATIONAL SERVICES, INC.

VALUATION AND QUALIFYING ACCOUNTS

FOR THE THREE YEARS ENDED DECEMBER 31, 2013

(Amounts in thousands)

Description	Balance at Beginning of Period		Charged to Expenses		Write-offs			Balance at End of Period
Allowance for Doubtful Accounts:
Year Ended December 31, 2013	$	15,663	$	67,640	($	74,129	)	$	9,174
Year Ended December 31, 2012	$	9,175	$	56,818	($	50,330	)	$	15,663
Year Ended December 31, 2011	$	7,526	$	35,655	($	34,006	)	$	9,175

XML

Employee Benefit Plans - Benefit Payments Expect to Pay from Pension Plans (Detail) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2013
Compensation and Retirement Disclosure [Abstract]
Fiscal 2014	$ 3,576
Fiscal 2015	3,464
Fiscal 2016	4,315
Fiscal 2017	4,896
Fiscal 2018	3,538
Fiscal 2019 - 2023	$ 16,838

XML

Revision of 2011 and 2012 Financial Statements - Effect of Revisions on Affected Line Items on Condensed Consolidated Statement of Cash Flows (Detail) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011
Condensed Consolidated Statement of Cash Flows Data:
Net income	$ (27,024)	$ 138,970	$ 309,086
Provision for doubtful accounts	67,640	56,818	35,655
Deferred income taxes	(54,425)	(59,999)	(8,991)
Restricted cash	(455)	3,794	(942)
Accounts receivable	(87,225)	(87,138)	(17,004)
Other operating assets and liabilities	74,203	72,857	35,964
Net cash flows from operating activities	77,725	107,621	388,763
As Previously Reported [Member]
Condensed Consolidated Statement of Cash Flows Data:
Net income		140,465	307,752
Provision for doubtful accounts		78,307	61,308
Deferred income taxes		(58,640)	(8,991)
Restricted cash		1,527	(1,873)
Accounts receivable		(107,514)	(40,477)
Other operating assets and liabilities		68,890	35,118
Net cash flows from operating activities		105,354	387,832
Revisions [Member]
Condensed Consolidated Statement of Cash Flows Data:
Net income		(1,495)	1,334
Provision for doubtful accounts		(21,489)	(25,653)
Deferred income taxes		(1,359)	0
Restricted cash		2,267	931
Accounts receivable		20,376	23,473
Other operating assets and liabilities		3,967	846
Net cash flows from operating activities		2,267	931
As Revised [Member]
Condensed Consolidated Statement of Cash Flows Data:
Net income		138,970	309,086
Provision for doubtful accounts		56,818	35,655
Deferred income taxes		(59,999)	(8,991)
Restricted cash		3,794	(942)
Accounts receivable		(87,138)	(17,004)
Other operating assets and liabilities		72,857	35,964
Net cash flows from operating activities		$ 107,621	$ 388,763

XML

Quarterly Financial Results (Detail) (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended								12 Months Ended
	Dec. 31, 2013	Sep. 30, 2013	Jun. 30, 2013	Mar. 31, 2013	Dec. 31, 2012	Sep. 30, 2012	Jun. 30, 2012	Mar. 31, 2012	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011
Quarterly Financial Information Disclosure [Abstract]
Revenue	$ 267,173	$ 259,617	$ 260,459	$ 285,062	$ 305,572	$ 313,791	$ 328,061	$ 339,209	$ 1,072,311	$ 1,286,633	$ 1,499,977
Cost of educational services	118,432	120,204	123,541	124,176	129,394	133,948	140,067	134,941	486,353	538,350	553,065
Student services and administrative expenses	101,303	96,182	98,335	101,721	88,995	104,647	105,895	101,319	397,541	400,856	414,156
Asset impairment					15,166	0	0	0	0	15,166	0
Legal and other investigation costs	3,121	2,089	213	1,500	0	0	873	0	6,923	873	0
Loss related to loan program guarantees	82,335	4,826	0	3,803	88,970	5,095	3,906	3,054	90,964	101,025	23,500
Provision for PEAKS Trust student loan losses	8,648	16,382	4,319	0					29,349	0	0
Operating income	(46,666)	19,934	34,051	53,862	(16,953)	70,101	77,320	99,895	61,181	230,363	509,256
(Loss) on consolidation of PEAKS Trust	0	0	0	(73,248)					(73,248)	0	0
Interest income	33	16	25	34	40	125	502	681	108	1,348	2,902
Interest (expense)	(7,144)	(7,190)	(7,369)	(3,574)	(901)	(1,021)	(1,254)	(547)	(25,277)	(3,723)	(1,825)
Income (loss) before provision for income taxes	(53,777)	12,760	26,707	(22,926)	(17,814)	69,205	76,568	100,029	(37,236)	227,988	510,333
Provision (benefit) for income taxes	(14,396)	3,336	6,503	(5,655)	(7,740)	26,747	30,627	39,384	(10,212)	89,018	201,247
Net income (loss)	$ (39,381)	$ 9,424	$ 20,204	$ (17,271)	$ (10,074)	$ 42,458	$ 45,941	$ 60,645	$ (27,024)	$ 138,970	$ 309,086
Earnings (loss) per share:
Basic	$ (1.68)	$ 0.40	$ 0.86	$ (0.74)	$ (0.44)	$ 1.82	$ 1.96	$ 2.39	$ (1.15)	$ 5.82	$ 11.27
Diluted	$ (1.68)	$ 0.40	$ 0.80	$ (0.63)	$ (0.44)	$ 1.81	$ 1.95	$ 2.37	$ (1.15)	$ 5.79	$ 11.18

XML

Employee Benefit Plans (Tables)

12 Months Ended

Dec. 31, 2013

Change in Projected Benefit Obligation

The following table sets forth the change in projected benefit obligation for the periods indicated:

	Year Ended December 31,
	2013			2012
Projected benefit obligation at beginning of year	$	57,246		$	54,485
Service cost		0			0
Actuarial (gain) loss		(5,345	)		3,180
Interest cost		1,756			2,062
Benefits paid		(4,245	)		(2,481	)
Plan amendments		0			0
Projected benefit obligation at end of year	$	49,412		$	57,246
Fair value of plan assets at end of year		76,710			64,390
Funded status at end of year	$	27,298		$	7,144

Defined Benefit Plans

The following table sets forth the funded status of our defined benefit plans that was recognized on our Consolidated Balance Sheets as of the dates indicated:

	As of December 31,
	2013			2012
Non-current assets	$	27,584		$	7,459
Non-current (liabilities)		(286	)		(315	)
Total	$	27,298		$	7,144

Change in Fair Value of Plan Assets

The following table sets forth the change in the fair value of plan assets for the periods indicated:

	Year Ended December 31,
	2013			2012
Fair value of plan assets at beginning of year	$	64,390		$	58,839
Actual return on plan assets		16,565			8,032
Employer contributions		0			0
Benefits paid		(4,245	)		(2,481	)
Fair value of plan assets at end of year	$	76,710		$	64,390

Fair Value of Total Plan Assets by Major Asset Category

The following tables set forth the fair value of total plan assets by major asset category as of the dates indicated:

	Fair Value Measurements as of December 31, 2013
Asset Category	Total		(Level 1) Quoted Prices in Active Markets for Identical Assets		(Level 2) Significant Other Observable Inputs		(Level 3) Significant Unobservable Inputs
Cash and cash equivalents	$	934	$	934	$	0	$	0
Fixed income securities (a)		12,596		12,596		0		0
Equity securities:
Domestic large cap		40,669		40,669		0		0
Mid cap value/growth (a)		12,610		12,610		0		0
Small cap value/growth (a)		7,163		7,163		0		0
Foreign equities		2,738		2,738		0		0
Total	$	76,710	$	76,710	$	0	$	0

^(a)  Mutual funds.

	Fair Value Measurements as of December 31, 2012
Asset Category	Total		(Level 1) Quoted Prices in Active Markets for Identical Assets		(Level 2) Significant Other Observable Inputs		(Level 3) Significant Unobservable Inputs
Cash and cash equivalents	$	1,078	$	1,078	$	0	$	0
Fixed income securities (a)		17,318		17,318		0		0
Equity securities:
Domestic large cap		29,594		29,594		0		0
Mid cap value/growth (a)		9,090		9,090		0		0
Small cap value/growth (a)		5,137		5,137		0		0
Foreign equities		2,173		2,173		0		0
Total	$	64,390	$	64,390	$	0	$	0

^(a)  Mutual funds.

Amounts in Accumulated Other Comprehensive Loss on Consolidated Balance Sheets that have not been Recognized as Components of Net Periodic Pension Benefit Cost

The following table sets forth the amounts in Accumulated other comprehensive loss on our Consolidated Balance Sheets that have not been recognized as components of net periodic pension benefit cost as of the dates indicated:.

	As of December 31,
	2013			2012
Net actuarial (loss)	($	546	)	($	20,191	)
Prior service credit		5,578			7,133
Total accumulated other comprehensive income (loss)	$	5,032		($	13,058	)
Income tax benefit (expense)		(1,886	)		5,128
Total accumulated other comprehensive income (loss), net of tax	$	3,146		($	7,930	)

Schedule of Changes in Components of Accumulated Other Comprehensive Loss

The following table sets forth the changes in the components of Accumulated other comprehensive loss on our Consolidated Balance Sheet in the fiscal year ended December 31, 2013:

	Defined Benefit Pension Items
	Accumulated Other Comprehensive Income (Loss)			Income Tax Benefit (Expense)			Accumulated Other Comprehensive Income (Loss) Net of Income Tax
Balance at January 1, 2013	($	13,058	)	$	5,128		($	7,930	)
Net actuarial gain		17,566			(6,811	)		10,755
Settlement gain		42			(17	)		25
Amortization of:
Actuarial (gains)/losses		2,037			(790	)		1,247
Prior service costs/(credits)		(1,555	)		604			(951	)
Balance at December 31, 2013	$	5,032		($	1,886	)	$	3,146

Components of Net Periodic Pension Benefit of Pension Plan and Excess Pension Plan

The following table sets forth the components of net periodic pension benefit (income) in the periods indicated:

	Year Ended December 31,
	2013			2012			2011
Interest cost	$	1,756		$	2,062		$	2,405
Expected return on assets		(4,344	)		(4,231	)		(4,756	)
Recognized net actuarial loss		2,037			2,718			1,803
Amortization of prior service (credit) cost		(1,555	)		(1,555	)		(1,555	)
Settlement loss		42			792			1,204
Total net periodic pension benefit (income)	($	2,064	)	($	214	)	($	899	)

Plan Assets and Projected Benefit Obligations Recognized in Other Comprehensive (Income) Loss

The following table sets forth the amounts related to changes in plan assets and projected benefit obligations that were recognized in other comprehensive (income) loss in the periods indicated:

	Year Ended December 31,
	2013			2012			2011
Net actuarial (gain) loss	($	17,566	)	($	621	)	$	9,504
Amortization of net actuarial loss		(2,037	)		(2,718	)		(1,803	)
Prior service cost (credit)		0			0			0
Amortization of prior service cost (credit)		1,555			1,555			1,555
Settlement		(42	)		(792	)		(1,204	)
Other comprehensive (income) loss	($	18,090	)	($	2,576	)	$	8,052
Total recognized in net periodic pension benefit (income) and other comprehensive (income) loss	($	20,154	)	($	2,790	)	$	7,153

Benefit Payments Expect to Pay from Pension Plans

The following table sets forth the benefit payments that we expect to pay from the pension plans in the periods indicated:

Year	Amount
Fiscal 2014	$	3,576
Fiscal 2015	$	3,464
Fiscal 2016	$	4,315
Fiscal 2017	$	4,896
Fiscal 2018	$	3,538
Fiscal 2019 – 2023	$	16,838

Net Periodic Pension Cost [Member]

Weighted-Average Assumptions used to Determine Benefit Obligations

The weighted-average assumptions used to determine net periodic pension benefit cost in the years ended December 31, 2013, 2012 and 2011 are as follows:

	2013			2012			2011
Discount rate		3.25	%		4.00	%		5.00	%
Expected long-term return on plan assets		7.00	%		7.50	%		8.00	%
Rate of compensation increase		N/A			N/A			N/A

Defined Benefit Obligations [Member]

Weighted-Average Assumptions used to Determine Benefit Obligations

The weighted-average assumptions used to determine benefit obligations as of December 31, 2013 and 2012 are as follows:

	2013			2012
Discount rate		4.25	%		3.25	%
Rate of compensation increase		N/A			N/A

XML

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (unaudited) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011
Statement of Comprehensive Income [Abstract]
Net income (loss)	$ (27,024)	$ 138,970	$ 309,086
Other comprehensive income (loss), net of tax:
Net actuarial pension (loss) gain, net of income tax of $6,811, $242 and $3,709	10,755	379	(5,795)
Net actuarial pension loss amortization, net of income tax of $790, $1,062 and $704	1,247	1,656	1,099
Prior service cost (credit) amortization, net of income tax of $604, $607 and $607	(951)	(948)	(948)
Pension settlement (loss), net of income tax of $17, $309 and $470	25	483	734
Unrealized gains (losses) on available-for-sale securities, net of income tax of $0, $0 and $0	0	(21)	(60)
Other comprehensive income (loss), net of tax	11,076	1,549	(4,970)
Comprehensive income (loss)	$ (15,948)	$ 140,519	$ 304,116

XML

Employee Benefit Plans - Weighted-Average Assumptions used to Determine Benefit Obligations (Detail)	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011
Compensation and Retirement Disclosure [Abstract]
Discount rate, Benefit Obligations	4.25%	3.25%
Rate of compensation increase, Benefit Obligations
Discount rate, Net Periodic Pension Cost	3.25%	4.00%	5.00%
Expected long-term return on plan assets, Net Periodic Pension Cost	7.00%	7.50%	8.00%
Rate of compensation increase, Net Periodic Pension Cost

XML

Revision of 2011 and 2012 Financial Statements

12 Months Ended

Dec. 31, 2013

Text Block [Abstract]

Revision of 2011 and 2012 Financial Statements

2. Revision of 2011 and 2012 Financial Statements

We identified corrections to our 2011 and 2012 financial statements related to the recognition of revenue with respect to students who withdrew from a program of study. We also corrected the calculation of the contingent loss for the 2009 RSA in our 2012 financial statements.

We evaluated the cumulative impact of those items on prior periods under the guidance in ASC 250, “Accounting Changes and Error Corrections” (“ASC 250”), relating to SEC Staff Accounting Bulletin (“SAB”) No. 99, “Materiality.” We also evaluated the impact of correcting those items through an adjustment to our financial statements for the fiscal year ended December 31, 2013. We concluded, based on the guidance in ASC 250 relating to SAB No. 108, “Considering the Effects of Prior Year Misstatement when Quantifying Misstatements in Current Year Financial Statements,” that the correction of those items in our 2011 and 2012 fiscal year would not be material, but would be material if corrected out-of-period in our 2013 fiscal year. As a result, we have revised our audited consolidated financial statements as of and for the fiscal years ended December 31, 2012 and December 31, 2011 to reflect the correction of those items that should have been recognized in those periods. The amounts of the corrections as of December 31, 2012 and December 31, 2011 are shown in the Revisions column in the tables below.

Our revised Consolidated Balance Sheet as of December 31, 2012 and Consolidated Statements of Shareholders’ Equity as of December 31, 2012, 2011 and 2010 also reflect the correction of the classification of funds held for students from Title IV Programs that result in a credit balance on a student’s account as restricted and amounts related to the vesting of RSUs from retained earnings to capital surplus. The amounts of these corrections related to our Consolidated Balance Sheets were not material and are shown in the Revisions column in the tables below. The December 31, 2012 Consolidated Balance Sheet reflects an adjustment to increase retained earnings by $5,366 and decrease capital surplus by $5,366 for the cumulative effect of the classification of the vesting of RSUs as of December 31, 2011. We also increased retained earnings as of December 31, 2011 by $306 for the cumulative effect of the adjustment for the recognition of revenue with respect to students who withdrew from a program of study in prior years.

The December 31, 2010 amounts presented on our Consolidated Statement of Shareholders’ Equity reflect an adjustment to increase retained earnings by $2,969 and decrease capital surplus by $2,969 for the cumulative effect of the classification of the vesting of RSUs. We also decreased retained earnings as of December 31, 2010 in our Consolidated Statement of Shareholders’ Equity by $1,028 for the cumulative effect of the adjustments for the recognition of revenue with respect to students who withdrew from a program of study in prior periods.

We reclassified the following items in our Consolidated Statement of Income for the year ended December 31, 2012 to conform with the current year presentation:

• settlement cost was reclassified to loss related to loan program guarantees;

• loss related to private student loan programs was reclassified to loss related to loan program guarantees; and

• an asset impairment was reclassified from loss related to private student loan programs to a separate line item.

We also corrected the classification of losses related to loan program guarantees, which were previously recorded as reductions to revenue in our Consolidated Statements of Income for the years ended December 31, 2012 and December 31, 2011, to report those amounts on a separate line. The amount of those corrections is shown in the Revisions column in the tables below.

The following table sets forth the effect of the revisions on the affected line items on our Consolidated Balance Sheet as of the date indicated.

	As of December 31, 2012
	As Previously Reported		Revisions			As Revised
Balance Sheet Data:
Cash and cash equivalents	$	246,342	$	(2,877	)	$	243,465
Restricted cash		601		2,877			3,478
Accounts receivable, net		77,313		1,615			78,928
Deferred income taxes (current)		44,547		0			44,547
Total current assets		384,965		1,615			386,580
Deferred income taxes		56,112		1,359			57,471
Total assets		672,230		2,974			675,204
Other current liabilities		86,722		20,074			106,796
Total current liabilities		306,949		20,074			327,023
Other liabilities		98,327		(15,911	)		82,416
Total liabilities		545,276		4,163			549,439
Capital surplus		206,703		(9,590	)		197,113
Retained earnings		959,072		8,401			967,473
Total shareholders’ equity		126,954		(1,189	)		125,765
Total liabilities and shareholders’ equity		672,230		2,974			675,204

The following table sets forth the effect of the revisions and reclassifications on the affected line items in our Consolidated Statement of Income for the year ended December 31, 2012.

	Year Ended December 31, 2012
	As Previously Reported		Revisions			Reclassifications			As Revised
Statement of Income Data:
Revenue	$	1,287,209	$	(576	)	$	0		$	1,286,633
Cost of educational services		539,223		0			(873	)		538,350
Student services and administrative expenses		422,345		(21,489	)		0			400,856
Settlement cost		21,750		0			(21,750	)		0
Asset impairment		0		0			15,166			15,166
Legal and other investigation costs		0		0			873			873
Loss related to private student loan programs		71,102		0			(71,102	)		0
Loss related to loan program guarantees		0		23,339			77,686			101,025
Total costs and expenses		1,054,420		1,850			0			1,056,270
Operating income		232,789		(2,426	)		0			230,363
Income before provision for income taxes		230,414		(2,426	)		0			227,988
Provision for income taxes		89,949		(931	)		0			89,018
Net income		140,465		(1,495	)		0			138,970
Earnings per share:
Basic	$	5.88							$	5.82
Diluted	$	5.85							$	5.79

The following table sets forth the effect of the revisions on the affected line items in our Consolidated Statement of Income for the year ended December 31, 2011.

	Year Ended December 31, 2011
	As Previously Reported		Revisions			As Revised
Statement of Income Data:
Revenue	$	1,499,949	$	(28	)	$	1,499,977
Cost of educational services		553,065		0			553,065
Student services and administrative expenses		439,808		(25,652	)		414,156
Loss related to loan program guarantees		0		23,500			23,500
Total costs and expenses		992,873		(2,152	)		990,721
Operating income		507,076		2,180			509,256
Income before provision for income taxes		508,153		2,180			510,333
Provision for income taxes		200,401		846			201,247
Net income		307,752		1,334			309,086
Earnings per share:
Basic	$	11.22				$	11.27
Diluted	$	11.13				$	11.18

The following table sets forth the effect of the revisions on the affected line items in our Consolidated Statement of Comprehensive Income for the year ended December 31, 2012.

	Year Ended December 31, 2012
	As Previously Reported		Revisions			As Revised
Statement of Comprehensive Income Data:
Net income	$	140,465	$	(1,495	)	$	138,970
Comprehensive income		142,014		(1,495	)		140,519

The following table sets forth the effect of the revisions on the affected line items in our Consolidated Statement of Comprehensive Income for the year ended December 31, 2011.

	Year Ended December 31, 2011
	As Previously Reported		Revisions		As Revised
Statement of Comprehensive Income Data:
Net income	$	307,752	$	1,334	$	309,086
Comprehensive income		302,782		1,334		304,116

The following table sets forth the effect of the revisions on the affected line items in our Consolidated Statement of Cash Flows for the year ended December 31, 2012.

	Year Ended December 31, 2012
	As Previously Reported			Revisions			As Revised
Statement of Cash Flows Data:
Net income	$	140,465		$	(1,495	)	$	138,970
Provision for doubtful accounts		78,307			(21,489	)		56,818
Deferred income taxes		(58,640	)		(1,359	)		(59,999	)
Restricted cash		1,527			2,267			3,794
Accounts receivable		(107,514	)		20,376			(87,138	)
Other operating assets and liabilities		68,890			3,967			72,857
Net cash flows from operating activities		105,354			2,267			107,621

The following table sets forth the effect of the revisions on the affected line items in our Consolidated Statement of Cash Flows for the year ended December 31, 2011.

	Year Ended December 31, 2011
	As Previously Reported			Revisions			As Revised
Statement of Cash Flows Data:
Net income	$	307,752		$	1,334		$	309,086
Provision for doubtful accounts		61,308			(25,653	)		35,655
Deferred income taxes		(8,991	)		0			(8,991	)
Restricted cash		(1,873	)		931			(942	)
Accounts receivable		(40,477	)		23,473			(17,004	)
Other operating assets and liabilities		35,118			846			35,964
Net cash flows from operating activities		387,832			931			388,763

The revisions had an effect on capital surplus, retained earnings and total shareholders’ equity as of December 31, 2012, December 31, 2011 and December 31, 2010, as reported in our Consolidated Statements of Shareholders’ Equity. The effect on capital surplus, retained earnings and total shareholders’ equity as of December 31, 2012 is shown in the Balance Sheet Data table above. The revisions resulted in the following changes to capital surplus, retained earnings and total shareholders’ equity as of December 31, 2011:

• a decrease in capital surplus of $5,366;

• an increase in retained earnings of $5,672; and

• an increase in total shareholders’ equity of $306.

The revisions resulted in the following changes to capital surplus, retained earnings and total shareholders’ equity as of December 31, 2010:

• a decrease in capital surplus of $2,969;

• an increase in retained earnings of $1,941; and

• a decrease in total shareholders’ equity of $1,028.

The revisions had an effect on net income for the years ended December 31, 2012 and December 31, 2011, as reported in our Consolidated Statements of Shareholders’ Equity. The effect of the revisions on net income for the years ended December 31, 2012 and December 31, 2011, as reported in our Consolidated Statements of Shareholders’ Equity, is shown in the Statement of Income Data tables above.

XML

Equity Compensation Plans - Stock Options Granted and Exercised (Detail) (USD $) In Thousands, except Share data, unless otherwise specified	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]
Shares subject to stock options granted	156,500	156,500	159,500
Weighted average grant date fair value	$ 9.27	$ 31.36	$ 28.90
Shares subject to stock options exercised	0	202,820	118,410
Intrinsic value of stock options exercised	$ 0	$ 4,802	$ 3,095
Proceeds received from stock options exercised	0	8,345	5,599
Tax benefits realized from stock options exercised	$ 0	$ 1,602	$ 1,190

XML

Income Taxes - Components of Deferred Income Tax Assets (Liabilities) (Detail) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2013	Dec. 31, 2012
Income Tax Disclosure [Abstract]
Deferral of book costs	$ (1,748)	$ (1,810)
Property and equipment	(1,807)	(6,416)
Pension	(10,566)	(2,712)
Other	(1,189)	(2,308)
Gross deferred tax (liabilities)	(15,310)	(13,246)
Deferred revenue	10,902	14,687
Accounts receivable	3,551	6,073
Legal accrual	3,455	2,018
Compensation and benefits	3,316	1,643
Stock-based compensation	20,794	22,680
Operating leases	2,386	735
Legal settlement accrual	0	17,834
Other assets	8,356	18,772
Other contingent liabilities	108,423	30,822
Gross deferred tax assets	161,183	115,264
Net deferred income tax asset	$ 145,873	$ 102,018

XML

Quarterly Financial Results (Parenthetical) (Detail) (USD $) In Thousands, unless otherwise specified	3 Months Ended								12 Months Ended
	Dec. 31, 2013	Sep. 30, 2013	Jun. 30, 2013	Mar. 31, 2013	Dec. 31, 2012	Sep. 30, 2012	Jun. 30, 2012	Mar. 31, 2012	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011
Quarterly Results Of Operations [Line Items]
Loss related to loan program guarantees	$ 82,335	$ 4,826	$ 0	$ 3,803	$ 88,970	$ 5,095	$ 3,906	$ 3,054	$ 90,964	$ 101,025	$ 23,500
Sales Revenue, Net [Member]
Quarterly Results Of Operations [Line Items]
Immaterial error correction related to students withdrawal from program					5,471
Selling, General and Administrative Expenses [Member]
Quarterly Results Of Operations [Line Items]
Immaterial error correction related to students withdrawal from program					5,571
2009 RSA [Member]
Quarterly Results Of Operations [Line Items]
Loss related to loan program guarantees					10,200
Contingent loss related to loan program guarantees					$ 1,084

XML

Variable Interest Entities - Schedule of Revenue and Expenses of PEAKS Trust (Detail) (USD $) In Thousands, unless otherwise specified	3 Months Ended								12 Months Ended
	Dec. 31, 2013	Sep. 30, 2013	Jun. 30, 2013	Mar. 31, 2013	Dec. 31, 2012	Sep. 30, 2012	Jun. 30, 2012	Mar. 31, 2012	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011
Variable Interest Entity [Line Items]
Revenue	$ 267,173	$ 259,617	$ 260,459	$ 285,062	$ 305,572	$ 313,791	$ 328,061	$ 339,209	$ 1,072,311	$ 1,286,633	$ 1,499,977
Student services and administrative expenses	101,303	96,182	98,335	101,721	88,995	104,647	105,895	101,319	397,541	400,856	414,156
Provision for PEAKS Trust student loan losses	8,648	16,382	4,319	0					29,349	0	0
Interest expense	7,144	7,190	7,369	3,574	901	1,021	1,254	547	25,277	3,723	1,825
Income (loss) before provision for income taxes	(53,777)	12,760	26,707	(22,926)	(17,814)	69,205	76,568	100,029	(37,236)	227,988	510,333
PEAKS Trust [Member]
Variable Interest Entity [Line Items]
Revenue									12,996
Student services and administrative expenses									5,288
Provision for PEAKS Trust student loan losses									29,349
Interest expense									21,288
Income (loss) before provision for income taxes									$ (42,929)

XML

QUARTERLY FINANCIAL RESULTS

12 Months Ended

Dec. 31, 2013

Quarterly Financial Information Disclosure [Abstract]

QUARTERLY FINANCIAL RESULTS

ITT EDUCATIONAL SERVICES, INC.

QUARTERLY FINANCIAL RESULTS

FOR 2013 AND 2012

(Amounts in thousands, except per share data)

(Unaudited)

	Three Months Ended
	March 31			June 30			Sept. 30			Dec. 31 (3)			Year
2013 (1)
Revenue	$	285,062		$	260,459		$	259,617		$	267,173		$	1,072,311
Cost of educational services		124,176			123,541			120,204			118,432			486,353
Student services and administrative expenses		101,721			98,335			96,182			101,303			397,541
Legal and other investigation costs		1,500			213			2,089			3,121			6,923
Loss related to loan program guarantees		3,803			0			4,826			82,335			90,964
Provision for PEAKS Trust student loan losses		0			4,319			16,382			8,648			29,349
Operating income (loss)		53,862			34,051			19,934			(46,666	)		61,181
(Loss) on consolidation of PEAKS Trust		(73,248	)		0			0			0			(73,248	)
Interest income		34			25			16			33			108
Interest (expense)		(3,574	)		(7,369	)		(7,190	)		(7,144	)		(25,277	)
Income (loss) before provision for income taxes		(22,926	)		26,707			12,760			(53,777	)		(37,236	)
Provision (benefit) for income taxes		(5,655	)		6,503			3,336			(14,396	)		(10,212	)
Net income (loss)	$	(17,271	)	$	20,204		$	9,424		$	(39,381	)	$	(27,024	)
Earnings (loss) per share:
Basic	($	0.74	)	$	0.86		$	0.40		($	1.68	)	($	1.15	)
Diluted	($	0.74	)	$	0.86		$	0.40		($	1.68	)	($	1.15	)
2012 (2)
Revenue	$	339,209		$	328,061		$	313,791		$	305,572		$	1,286,633
Cost of educational services		134,941			140,067			133,948			129,394			538,350
Student services and administrative expenses		101,319			105,895			104,647			88,995			400,856
Asset impairment		0			0			0			15,166			15,166
Legal and other investigation costs		0			873			0			0			873
Loss related to loan program guarantees		3,054			3,906			5,095			88,970			101,025
Operating income (loss)		99,895			77,320			70,101			(16,953	)		230,363
Interest income		681			502			125			40			1,348
Interest (expense)		(547	)		(1,254	)		(1,021	)		(901	)		(3,723	)
Income (loss) before provision for income taxes		100,029			76,568			69,205			(17,814	)		227,988
Provision (benefit) for income taxes		39,384			30,627			26,747			(7,740	)		89,018
Net income (loss)	$	60,645		$	45,941		$	42,458		($	10,074	)	$	138,970
Earnings (loss) per share:
Basic	$	2.39		$	1.96		$	1.82		($	0.44	)	$	5.82
Diluted	$	2.37		$	1.95		$	1.81		($	0.44	)	$	5.79

(1) The amounts shown for the fiscal quarters ended March 31, 2013, June 30, 2013 and September 30, 2013 are the restated amounts, as reported in the amended Quarterly Reports on Form 10-Q (i.e., Form 10Q/As) for the fiscal quarters ended March 31, 2013, June 30, 2013 and September 30, 2013, as filed with the SEC.

(2) The amounts shown for the fiscal quarters ended March 31, 2012, June 30, 2012, September 30, 2012 and December 31, 2012 are the revised amounts, as reported in the amended Quarterly Reports on Form 10-Q (i.e., Form 10Q/As) for the fiscal quarters ended March 31, 2013, June 30, 2013 and September 30, 2013, as filed with the SEC.

(3) We revised our Consolidated Statement of Income for the three months ended December 31, 2012 to reflect immaterial corrections for: (i) the recognition of revenue with respect to students who withdrew from a program of study, which reduced revenue by $5,471 and student services and administrative expenses by $5,571; (ii) losses related to the 2009 RSA, which increased both revenue and loss related to loan program guarantees by $10,200; and (iii) a contingent loss related to the 2009 RSA, which increased loss related to loan program guarantees by $1,084.

XML

PEAKS Trust Student Loans - Schedule of Information Regarding Changes in Allowance for Loan Losses (Detail) (USD $) In Thousands, unless otherwise specified	3 Months Ended				12 Months Ended
	Dec. 31, 2013	Sep. 30, 2013	Jun. 30, 2013	Mar. 31, 2013	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011
Accounts, Notes, Loans and Financing Receivable [Line Items]
Provision for loan losses	$ 8,648	$ 16,382	$ 4,319	$ 0	$ 29,349	$ 0	$ 0
PEAKS Trust Student Loans [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Beginning balance				0	0
Loans charged off					0
Recoveries from charged off loans					0
Provision for loan losses					29,349
Ending balance	$ 29,349				$ 29,349

XML

Property and Equipment (Tables)

12 Months Ended

Dec. 31, 2013

Property, Plant and Equipment [Abstract]

Property and Equipment, Net

The following table sets forth our property and equipment, net, as of the dates indicated:

	As of December 31,
	2013			2012
Furniture and equipment	$	162,128		$	171,534
Buildings and building improvements		134,993			134,303
Land and land improvements		39,609			39,609
Leasehold improvements		20,953			21,447
Software		8,620			8,620
Construction in progress		156			1,177
	$	366,459		$	376,690
Less: Accumulated depreciation and amortization		(197,950	)		(186,800	)
Property and equipment, net	$	168,509		$	189,890

Depreciation and Amortization Expense

The following table sets forth the depreciation and amortization expense for the assets listed above in the periods indicated:

	Year Ended December 31,
	2013		2012		2011
Depreciation and amortization expense	$	27,007	$	29,320	$	27,856

XML

Property and Equipment

12 Months Ended

Dec. 31, 2013

Property, Plant and Equipment [Abstract]

Property and Equipment

12. Property and Equipment

The following table sets forth our property and equipment, net, as of the dates indicated:

	As of December 31,
	2013			2012
Furniture and equipment	$	162,128		$	171,534
Buildings and building improvements		134,993			134,303
Land and land improvements		39,609			39,609
Leasehold improvements		20,953			21,447
Software		8,620			8,620
Construction in progress		156			1,177
	$	366,459		$	376,690
Less: Accumulated depreciation and amortization		(197,950	)		(186,800	)
Property and equipment, net	$	168,509		$	189,890

Software includes purchased and internally developed software.

The following table sets forth the depreciation and amortization expense for the assets listed above in the periods indicated:

	Year Ended December 31,
	2013		2012		2011
Depreciation and amortization expense	$	27,007	$	29,320	$	27,856

XML

Commitments and Contingencies - Estimated Amounts of Regular, Discharge Payments Expected to Pay and Estimated Recoveries from Charged-off Loans (Detail) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2013
Summary Of Projections Of Estimated Payments And Recoveries [Line Items]
Estimated Regular Payments	$ 55,653
Estimated Discharge Payments	75,194
Estimated Total Payments	130,847
Estimated Recoveries	(4,911)
2013 [Member]
Summary Of Projections Of Estimated Payments And Recoveries [Line Items]
Estimated Regular Payments	9,009
Estimated Discharge Payments	0
Estimated Total Payments	9,009
Estimated Recoveries	(1,011)
2014 [Member]
Summary Of Projections Of Estimated Payments And Recoveries [Line Items]
Estimated Regular Payments	14,251
Estimated Discharge Payments	0
Estimated Total Payments	14,251
Estimated Recoveries	(1,200)
2015 [Member]
Summary Of Projections Of Estimated Payments And Recoveries [Line Items]
Estimated Regular Payments	16,060
Estimated Discharge Payments	0
Estimated Total Payments	16,060
Estimated Recoveries	(1,200)
2016 [Member]
Summary Of Projections Of Estimated Payments And Recoveries [Line Items]
Estimated Regular Payments	16,333
Estimated Discharge Payments	0
Estimated Total Payments	16,333
Estimated Recoveries	(1,200)
2017 and Later [Member]
Summary Of Projections Of Estimated Payments And Recoveries [Line Items]
Estimated Regular Payments	0
Estimated Discharge Payments	75,194
Estimated Total Payments	75,194
Estimated Recoveries	$ (300)