I wouldn't mind other races, but I don't think that the races should be determined by faction. Why not have a mix in both with some races seeing a higher percentage of representation in one faction over another? In other words, factions A and B both have Elves, but faction B does have more elves than faction A. That would get rid of the need for shapeshifting, though it would still put some skepticism on a race in a faction that doesn't have a lot of that race, like Elves in faction A.

The impression I got concerning the nature of the academy is that it is designed to raise children for war, not adults. Conscription would make less sense then, as the government has a feasible reason for acquiring the students for the academy, and that is for education. Depending on how propaganda-heavy this government is, it could even be seen as the pinnacle of education for children, making the parents glad that their kids are going to attend it, all the while unaware of its sinister purpose.

I also like the idea of other races being seen as inferior to humans and often used as slaves and whatnot. And it would be interesting to see a xenophobic government use them for war as a way of reducing their numbers. Not to mention the training 'accidents' that can happen to some of the stronger members of the inferior races.

Those are just some of my thoughts on what has been presented thus far. :3