The following description of the ESI 401(k) Plan (the “Plan”) provides only general information.  Participants should refer to the Summary Plan Description and the Plan document for more complete descriptions of the Plan’s provisions.

General

The Plan is a defined contribution plan covering all salaried employees of ITT Educational Services, Inc. (“ESI”) (or an affiliate of ESI that adopts the Plan) who have completed one year of service.  It is subject to Section 401(a) of the Internal Revenue Code (the “IRC”) and the provisions of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”).  The ESI Employee Benefit Plan Administration and Investment Committee (the “Committee”) is the plan administrator of the Plan for purposes of ERISA.  J.P. Morgan/American Century Retirement Plan Services provides administrative services under a written agreement with the Committee.  UMB Bank, N.A. is a trustee of the trust for the Plan.

The Plan became effective in May 1998, and the first transfer and contribution to the Plan were made in June 1998.  Prior to June 1998, ESI employees participated in The ITT 401(k) Retirement Savings Plan (the “ITT Plan”) of ITT Corporation, ESI’s former parent corporation.  During 1998 and 1999, the portion of the ITT Plan assets attributable to ESI employees was transferred to the ESI employees’ Plan accounts, which is reflected in the statement of changes in net assets available for plan benefits as “Transfer in from ITT Plan.”

Contributions

Each year, a participant may contribute up to 16% of pretax annual base compensation, as defined in the Plan.  ESI makes a matching contribution equal to 50% of the first 5% of base compensation that a participant contributes to the Plan during each payroll processing period.  In addition, ESI makes a retirement contribution of 1% of a participant’s base compensation for each payroll processing period.  ESI contributions are made or invested in ESI common stock.  Participant contributions are invested among a number of available investment funds as directed by each participant.  At age 55, participants may choose to re-allocate existing ESI contribution accounts and allocate all future ESI contributions among all available investment funds.  Contributions are subject to certain limitations.

Participant Plan Accounts

Each participant’s Plan account is credited with the participant’s contributions, the ESI matching and retirement contributions and an allocation of Plan earnings derived from the participant’s investment options, and is charged with an allocation of administrative expenses.  Earnings and administrative expenses are allocated among the funds based on account balances.  The benefit to which a participant is entitled is the benefit that can be provided from the vested portion of participant’s Plan account.  Forfeitures from terminated participants’ non-vested accounts are used to reduce future ESI contributions.  Total forfeitures for participants’ non-vested accounts were $86,420 and $39,693 for 2000 and 1999, respectively.