Toronto, ON, May 23, 2006 – Student Transportation of America Ltd. (TSX:STB.UN) announced last week that they had entered into an agreement to sell 4,900,000 Income Participating Securities (“IPSs”) at $12.25 each to raise gross proceeds of Cdn $60,025,000 on a bought deal basis. STA also announced that it was increasing annual distributions to Cdn $1.095 from Cdn $1.075. This new level of distributions represents an annualized yield of 8.9 per cent to investors who purchase IPSs at the $12.25 per unit price.

“We are pleased that this offering will enable us to reduce our bank debt and pay off the growth facility line. It will reduce our interest costs and improve our balance sheet. It also creates up to US $40 million of new capacity for our continued accretive growth program.” said Denis J. Gallagher, Chairman and Chief Executive Officer. “We are also pleased to be in a position to raise the dividend portion of our distributions for the first time since our IPO 17 months ago.”

With the new capital raise, interest rate reduction, recently announced accretive growth initiatives, a new vehicle leasing agreement and inclusive of the dividend increase, the Company expects its pay out ratio on an annualized run rate basis for fiscal year 2007 which begins July 1, 2006 to be below 80 per cent.

STA also reported that it has entered into its first agreement to lease approximately 125 new school vehicles for the upcoming school year from GE Commercial Finance, a division of GE Capital at a fixed interest rate of 6.3 per cent for six years. The move to the operating leases will allow the Company to use its raised capital more efficiently for growth. “We are a transportation management and services company to school districts throughout North America. With our compounded annual growth rate of 24 per cent for the past five years, the program offered by GE provides low cost operating leases for our normal replacement capital expenditures which substantiality lowers our pay out ratio on an annualized basis. It will also create a greater return on equity for shareholders as we will use our revolving credit facility primarily for funding growth,” said Mr. Gallagher.

On the senior credit facility interest rate reduction, Gallagher stated in addition to the 75 basis point rate reduction on its facility that was announced at the end of March, the new equity financing triggers a further reduction in the interest rate by an additional 75 basis points under the terms of the current facility. After giving effect for the reduction from the new offering, the Company’s senior debt will be at one times EBITDA.

Profile

Student Transportation is the fifth-largest provider of school bus transportation services in North America, conducting operations through local operating subsidiaries. Student Transportation has become a leading school transportation and management company by aggregating operations through the consolidation of existing providers and conversion of in-house operations and currently operates more than 4,000 school vehicles in North America. For more information, please visit www.sta-ips.com.

Forward-Looking Statements

This news release contains “forward-looking statements” within the meaning of applicable securities laws, which reflects the expectations of management regarding the Issuer’s and Company’s results of operations, expense levels, seasonality, cash flows, performance, liquidity, borrowing availability, financial ratios, ability to execute the Company’s growth strategy and cash distributions. Forward-looking statements generally can be identified by the use of forward-looking terminology such as “may”, “will”, “expect”, “intend”, “track”, “targeted”, “estimate”, “anticipate”, “believe”, “should”, “plans” or “continue” or similar expressions suggesting future outcomes or events. These forward looking statements reflect the Company’s current expectations regarding anticipated future events, results, circumstances, performance or expectations that are not historical facts. Forward looking statements involve significant risks and uncertainties, and should not be read as guarantees of future performance or results, and will not necessarily be accurate indications of whether or not or the times at which or by the performance or results will be achieved. A number of factors could cause our actual results to differ materially from the results discussed, expressed or implied in any forward-looking statement made by us or on our behalf, including, but not limited to, the factors discussed under “Risk Factors” in our Annual Information Form. These forward looking statements are made as of the date of this news release and, except as required by applicable law, we undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.

For more information contact:

Denis J. Gallagher
Chairman and Chief Executive Officer
Phone: (732) 280-4200
Fax: (732) 280-4213

Patrick J. Walker
Chief Financial Officer
Phone (732) 280-4200
Fax: (732) 280-4213

Keith P. Engelbert
Director of Investor Relations
Phone: (732) 280-4200
Fax: (732) 280-4213

[email protected]