The narrator is being tongue-in-cheek or ironic when he calls Digby and Jeff bad. They are characters who think they are bad (tough, rebellious, worldly) when in fact they are sheltered college kids who simply pose at being bad.
For example, the narrator is being wry when he says that Digby "allowed" his father to pay his tuition to Cornell: he is simply a privileged kid who gets to go to a very expensive, elite school because his parents can afford it.
Much of their "badness," therefore, is simply fashion statement. These two—and three, if we include the narrator—can pose as "bad" because their parents provide them with education, housing, and cars. Much of what the narrator points to in describing their badness is simply superficial. We note that Digby likes the idea of becoming a painter or a musician or owning a head shop (a place selling drug paraphernalia...
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like bongs) but in actuality is doing nothing about any of that: it is all talk.
Digby and Jeff know how to party, roll a joint, and speed around in a car. Perhaps the most comic description of their posing is the following:
they wore their mirror shades at breakfast and dinner, in the shower, in closets and caves.
All of this provides a backdrop for their encounter with the truly bad events that they will encounter at Greasy Lake, their initiation into adulthood.
In the second page of Boyle's "Greasy Lake," the narrator provides us the following description of Digby and Jeff:
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.
Most of the descriptions here reference Digby's and Jeff's appearance rather than their behavior. Like the narrator, Digby and Jeff are for more interested in looking bad than really being bad; they want to be cool.
The first description of Digby reveals the reality of the situation. He wears the gold star in his ear, just as a "dangerous character" might; however, Digby's father is paying his college tuition, something to which no "dangerous character" would ever aspire.
Like most teenagers, the narrator, Digby, and Jeff want to be cool. Their desire to be "bad" is more of an ideal and a dream than it is a reality. This, of course, all changes with the encounter with Bobby and the chaos that ensues.
Why does the narrator call Digby and Jeff "bad" in Greasy Lake?
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.