Actually, Universities are made up of multiple colleges (aka divisions) within the University, each with their own separate funding and hierarchies. College is just a single institution. Both can participate in research. The fundamental difference is the structure. For example, a degree in Computer Science from Old Dominion University is governed by their College of Sciences.
That said, the idea that an NPC who says they "went to University" in the European manner breaks immersion is profoundly ridiculous. Chicago is a multi-ethnic city. The NPC could very well be from Europe and attended college in the United States. If anything, the sheer diversity of conversations in the game create immersion (although some of the hacked ones are creepy as hell, such as the one I just listened to where a guy tried to explain how they squeeze gel into fake boobs).