Ahh… but you’re FRIENDS. One of my friends had a group of college roommates who were pretty ethnically diverse–and they regularly, jokingly, called their Puerto Rican friend, “Spic.” Did he take offense? No. Because they were all friends, and he knew his friends weren’t really putting him down in any serious way. He called one of the other roommates (of Lebanese descent) a camel-jockey, etc.
Obviously, if they walked up to a random Latino on the street and called him “Spic,” things would be a lot less funny.
In any event, here’s my vote on the OP:
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The student exercised poor judgment. He should not have darkened his skin. If he were part of a comdey troupe doing a sketch (remember Billy Crystal as Sammy Davis Jr.?), he might have been able to get away with it. But unless you are VERY careful about framing the setting in which you wear such makeup, you’re asking for trouble.
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Unless the incident took place as part of a school-sponsored function, the University should keep the hell out. It’s none of their damn business if their students are racists (even though this kid is clearly not, he just made a questionable costume choice). You know what? I went to a school in central Pa. where there were a LOT of racists. We even had Holocaust revisionists who set up tables on campus to spout their views. Did the University stop them? No. It wasn’t their place. They left it to the students who were offended to shout them down and show how stupid these people were. It worked great, IMHO.