Why Is Rival Schools Set in High Schools?
The school setting was not the first idea, and director Hideaki Itsuno has told the story himself. Rival Schools began as Justice Fist, a fighting game in which fighters from every country came together to decide who was the strongest in the world.
Itsuno wrote the design document and showed it to co-workers who had been at Capcom longer than he had. The response was humble, in his telling, and coverage of his Capcom interview puts it more bluntly: the senior staff found the world tournament idea boring. He needed a setting people had an interest in and understood.
THE TWO COVERS
Same game, two shelves

THE ANSWER, IN HIS WORDS
From Itsuno’s Capcom interviewWHAT THE SETTING BOUGHT THE GAME
Design consequencesSchool gave Capcom a ready made faction system. The cast is organized by five schools with instant identities: Taiyo High as the heroes, Gorin High as the sports school, Pacific High for the American exchange students, Gedo High for the delinquents, and Justice High as the villains. Every fighter is a school archetype turned into a move set: the baseball player Shoma fights with a bat, volleyball player Natsu and soccer player Roberto weaponize their sports, Kyoko is the school nurse whose Team Up attack heals her partner with a back rub, and Hayato, added for the PlayStation version, is the physical education teacher.
It also solved the accessibility problem Itsuno cared about. Coming off Star Gladiator, he wanted a 60fps competitive fighter that newcomers could actually pick up, so the game uses a four button layout and forgiving inputs. A schoolyard cast that anyone can read at a glance, students, teachers, a nurse, a principal, is part of that same design: no lore required, because the player already lived the setting. The bet worked commercially in Japanese arcades, where Rival Schools was the most successful arcade game of its month, and the setting became so identified with the series that its sequel, its comics and even a band named after it all kept the schools at the center.