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First, because the most selective schools presumably are attended by students who have the greatest range of choice. They could have chosen to attend other colleges, but did not. To the extent they are rational and well-informed, one would think they tend to choose higher quality schools. Right? </p>
<p>Second, because the most selective schools presumably are selecting for characteristics that positively affect the learning environment. They tend to select more talented, harder-working students. This (if the system is working) tends to make for livelier discussions, a richer extracurricular life, and so forth. So the student body itself is a quality factor.</p>
<p>Of course, schools vary to some degree in their selection criteria. In addition, the admissions “market” is not equally free at all schools. There may be a thumb on the selection scale for in-state applicants, for example. So the correlation has some slop.</p>