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U.S. school data has revealed extreme racial inequality in exceptionalities, with students of color up to three times more likely to be identified with exceptionalities (educational disabilities) as their white peers, yet scholars understand little of why this disproportionality occurs. I define exceptionalities as social constructs rather than natural categories. In this paper, I examine how the racial context of a school might affect the disproportionate placement of students into special education services. Similar to previous research on racial disproportionality in special education services, I find that black and Native American students are more likely to be identified with exceptionalities at the individual level, while Hispanic students have similar odds as their white peers, and Asian American students have lower odds than their white peers. However, I find that when surrounded by non-white peers, white students have even lower rates of identification with more disadvantaged exceptionality categories, and higher rates of identification with potentially more advantaged exceptionality categories. Non-white students, on the other hand, experience almost universal dampening effects of being surrounded by their same-race peers in their odds of being identified with exceptionalities. These effects are even stronger for what I argue is the most disadvantageous category of exceptionality, emotional/behavioral disorder. While these results are only preliminary and will be expanded for the full conference paper, they indicate some support for the idea that special education services help reproduce racial inequalities, particularly in the context of increasing racial competition.