Please, illuminate me as to what groundbreaking dark humour using racial slurs I'm missing. 
The use of racial slurs is facile and ignorant, and best avoided.
I'd also find it hard to believe the college guy in question is some yet undiscovered comedic genius, which makes your defense quite useles.

We're all prone to irritation, and getting upset and even lashing out once in a while is perfectly normal, even if you would have rather handled it another way. In fact, sometimes it is best to be stern with these people, as without any boundaries being set, they think what they are doing is not only acceptable, but preferable. If the guy is going to be so offended at his causing offense, then perhaps it is for the best that he finally had someone to help set him straight (at least partially). I wouldn't feel guilty about it, if I were you. 

Not necessarily calm, but I think being blunt enough without shouting can still make an important impact on any person, perhaps even greater, but the commentary needs to be spot on so the message can touch the person's heart. So I personally just would've said to him, "dude, you need to stop because X and Y, and Z is going to happen to you". Getting away from him was another good choice, though, if you just don't like his way to be funny, then there's simply no way around it. There's also nothing wrong if you want to help him out, but be moderate in your approach.