Colloquial Diction, When is it Necessary?

When is colloquial diction acceptable? When can it be used to make sense? Colloquial diction is used every single day by almost everyone. I, myself have fallen accustom to using it at least 10 times a day and it is a very interesting phenomenon.
Colloquial diction has been used since the beginning of language. Different societies have used different slang terms to mean the same words. There are even dictionaries of slang terms.
But, in past years much of the colloquial diction has derived from racism, and I think that all of these racist slang words have derived from immigration. When the U.S. first started to get ship loads of immigrants from all over the world, cultural clashing began. The reason so many people came to the U.S. was because of the opportunity it offered. Documents such as The Declaration of Independence, The U.S. Constitution and The Bill of Rights offered freedoms and opportunities that many people have never dreamed of in other countries. But, there was a price to pay with all of the immigrants coming in, lack of living space, and this caused many different cultures to be very packed together. This in turn caused hate and racism between races thus creating racist slang.
Another argument over colloquial diction is that in schools, many slang words that are created are overused and idiotic. For example, in my school words such as dirt, scrub, grime, and lax are words used as completely different meanings then what they really mean. In my school dirt: is a verb that describes someone who is good or had done something extraordinary. Grime: is someone that steals or cheats off someone for their own benefit. Lax: is another word for Lacrosse, however words such as lax bro work hand in hand. Scrub: is someone who is bad at an activity, but tries to be good. All of these words can be rearranged or formed into sentences such as grime into grime-seed or grime-ski, or dirt into dirty scrub lax bro. All of these idiotic words mean nothing to other schools but to ours its a language and a native tongue to many people.