You can get something very nice without being ostentatious.

I just asked my SO what his thought process was, so I'll quote him:

"When I was shopping for your ring, I was looking for something that could be an heirloom. It doesn't have to be expensive to be an heirloom, but it should be something that is better than ordinary. But you have to have good judgment and taste to pick out something that's going to be of long-lasting heirloom quality; picking up something too flashy isn't necessarily good because things like that could be cheesy (huge stone or lots of them) or go out of style, and that's why I picked something classic. You want to look for discounts on the full price because retail markup is something that you will lose. The difference between what you pay for an item and its street value is the "cost of ownership", which becomes minimal if you wear it for a long time and enjoy it."

I would also add that your fiance should shop around for a place that will offer a payment plan that fits into your budget (we are both grad students). If he had gotten something that tied up so much of our money that we were launched into abject poverty for several years, I would be irritated. But, since jewelry (especially classic jewelry) is value-holding, what you're really doing is transferring some of your wealth into a different asset.

A wedding ring or engagement ring is something that should mean something to you. I can see how some people would think it's ostentatious to wear a jewelry item that cost x-thousand dollars, but it does hold its value and if you derive pleasure from owning it and wearing it, then that's what's important. (An aside: Things like expensive electronics, cars, clothes, etc. devalue immediately, so I would consider those things much more ostentatious than jewelry.) If you're going to be combining finances in the future (one of the purposes of marriage), it's good to get in the habit of discussing those things now.

tl;dr When you talk with your SO about getting engaged, bring up these points: You would very much like a ring, something timeless and beautiful that you'll always love to wear, but you don't need something super flashy or way beyond his means to buy. Buying a high-quality ring is not an investment, but it is a smart transfer of wealth.

Quick edit: I assumed that you were worried about people judging you if you were wearing something that looked particularly expensive; if you were more concerned about the stone source (like conflict diamonds), just ask the store what precautions they take. Or, you can specifically request a lab-created stone.

Hope this helps!