In T.C. Boyle's short story "Greasy Lake," the word "bad" is used in a slangy way that really describes something good. The very first sentence states, "it was good to be bad . . . you cultivated decadence like taste." The story explores the allure and aesthetics of danger, youthful disobedience, and rebellion. "Bad" is a posture that the characters of the story aspire to. "Bad" is punk. "Bad" is cool.
Digby and Jeff are "bad" because, according to the narrator,
Digby wore a gold star in his right ear and allowed his father to pay his tuition at Cornell; Jeff was thinking of quitting school to become a painter/musician/head-shop proprietor. They were both expert in the social graces, quick with a sneer, able to manage a Ford with lousy shocks over a rutted and gutted black-top road at eighty-five while rolling a joint as compact as a Tootsie Roll Pop stick. They could lounge against a bank of booming speakers and trade "man"s with the best of them or roll out across the dance floor as if their joints worked on bearings. They were slick and quick and they wore their mirror shades at breakfast and dinner, in the shower, in closets and caves. In short, they were bad.
This is the passage your teacher is probably looking for you to reference in answer to this question, so let's unpack this. Clearly, both of these characters are leaning heavily into the image of the bad kid. It's also clear that the narrator admires them for their badness. In describing their abilities to sneer and drive beat up cars and roll joints as "social graces," a term usually applied to politeness, manners, and charm, he's elevating these attributes to be among the most desirable.
Tellingly, however, this "badness" is fairly superficial. Both Digby and Jeff are in college, and however much the narrator may admire Jeff for thinking about dropping out, there's no saying for certain if he ever actually will. Ultimately, though both characters and the narrator himself conceive of themselves as dangerous and want to believe that they're bad, they quickly lose control over these carefully constructed self-images when confronted with actual danger.