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It's really about fit, as just about everyone else had said; do you want to be miserable at Harvard or happy as a clam at a state university? I'd personally choose the second choice.
I live in a town where we rarely send people to really prestigious schools. This year, our valedictorian will be attending UT Austin (honors) and our salutatorian will be going to texas A&M. Do they think they're "settling"? Not a bit! We may send someone to Tufts, or Wash U, or Dartmouth, or Princeton every year or so, but that doesn't mean I don't attend a good high school. In the culture of my town, it's very, very normal for the best students to go to state universities. And I think that's great. Even though that may not be what I want to do, how can I condemn someone for the choices they make? As they say, don't judge until you've walked a mile in their shoes.
I guess what I'm trying to say is, there are all types of prestigious. What counts is making the decision that is right for you, and choosing a school that is most prestigious for you, in your own eyes.
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