Public universities are bound by the First Amendment and thus have to allow speech that most people would find very offensive. Private universities are not bound in the same way, and I think they should take advantage of their status to limit intolerance.
First, it is useful to think about why the First Amendment is so stringently enforced in public settings, even when those being protected are KKK members or Neo-Nazis. One reason is obvious: People are entitled to their opinions and to expressing those opinions, coercive restrictions on this privilege are wrong. A second reason is institutional. Given that governments are overreaching and prone to abuse their power, it is better to hold a clear line against all speech restrictions than to allow a vague metric that will pave the way to future abuses.
I will return to the second rationale because the first does not apply to private settings. The company Monsanto does not have to allow people to protest inside the atrium of its corporate headquarters, primarily because it does not need to allow people to enter its corporate headquarters. It can set the rules for admission to its property, even if those rules involve restricting what people can say. The same goes for my house. I can force people to leave who insult other guests or say things I don't like; I have this power for better or worse. Proprietors gain an indirect power over people’s speech on that property, just by controlling it.
From this perspective, private universities, because they are private, are more justified in restricting their students' speech, especially since they lay out other conditions for attendance. Just as with any other transaction, private universities can condition attendance on observing a speech code. However, that does not mean it is wise for them to do so.
But the argument in favor of some restrictions is not hard to see. If someone uses a racial slur in my house, then barring some special circumstances, it would be a good thing if I made that person leave. Or again, if someone showed up to a party at my house wearing a KKK outfit, I think it would be a good thing to turn them away. My responses in these situations are, to me, basic expressions of non-tolerance for hateful ideologies. I am not talking about rights or broader issues of political correctness in our culture; I just think common decency demands not tolerating acts of overt racism when they are committed in front of you.
If we should not tolerate hateful speech when it appears (especially on our personal property), then university officials are just proprietors (or better, representatives of the proprietors) of an even larger and more complex piece of property and should do the same by contract.
To give a concrete scenario, imagine that a memorial service is being held on a university quad for one of the school's homosexual graduates who died in Afghanistan. If some students wanted to chant “god hates fags” (as happened in the facts of a recent Supreme Court case), I would hope the university would move them off the quad, or barring that, take disciplinary action against the students for violating the campus speech code.
Things get tricky with my analogy, though. Universities, you might say, are supposed to be places of learning and should allow all viewpoints. But what is the view being expressed by people shouting “no means yes” or holding signs with slurs on them? It seems like they are just bullying people; something that is very harmful to the learning environment. Moreover, students do not have to learn everything in college. There are plenty of opportunities outside of the campus to run into racists or whoever else, if one thinks this is an important learning experience.
Another objection may be that universities will become overzealous and restrict speech too much in an effort to stop these egregious scenarios. I will not deny that it is a risk, but it is a small one that can be solved by having strong student involvement in passing judgments on campus speech code cases. Also, according to a free-market argument, students do not have to attend a university with a restrictive speech code. Private colleges are a market like any other, and students have the choice to go elsewhere.
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