This Indiana study reviewed the program by which students with severe disabilities are placed in alternative/residential services. It examined the types of children served, the services they receive, and the costs of these services. Data were collected from 299 applications for services in residential treatment and local alternative services. Most (64 percent) of the children were classified as emotionally disturbed, followed by autism (13 percent), severe mental handicap (5 percent) and hearing impairment (4 percent). Most of the students are male (81 percent) and about 70 percent have received a clinical mental health diagnosis, the most common being conduct disorder/oppositional disorder (20 percent). Seven risk characteristics and problem behaviors associated with one another were identified, including conduct disorders, developmental disability, juvenile delinquency, medical problems, serious emotional problems, and sexual problems. Three family risk factors were identified: a dangerous or abusive home situation, an unstable family history, and mental illness in the family. Most (54 percent) students were placed in alternative services in the community, 32 percent were placed in residential programs in state, and 14 percent went out of state. Local alternative placement averaged $33,000, whereas residential placement averaged $75,000 per contract, regardless of the specific services provided or child/family risk factors. Results strongly support strengthening the capacity of communities to provide services locally. Appended are a summary of national and state trends in care systems, data collection forms, data tables, and descriptions of three cost models. (Contains 21 references.) (DB)