The odds of actually publishing are low, but just in case, I wanted to know if using a public university campus as a setting for my tragic romance would open me up to libel suits or anything else. A few things do happen in the book that are very unfortunate, but I don’t know if that would get me in trouble with the town or the university.
In order for a lawsuit to prevail, a statement has to be 1) untrue, 2) reasonably taken to be true, and 3) be highly offensive to a reasonable person.
Let's take the third. Everyone knows that tragic events happen at universities all the time. These occur all the time, including suicides, natural deaths, and date rape. The fact that something "unfortunate" supposedly happened on university premises would not "offend" a reasonable person, unless you allege that the university did or failed to do something (negligence) that caused your unfortunate events. Put another way, "defamation" does not occur if the "sting" of your fictitious events is no greater than that of events that actually happen at the university.
Your second defense is to put up the standard disclaimers that serve as a "signal" of fiction so that things aren't reasonably taken to be true; that e.g. "this is a work of fiction. Any resemblances between fictitious and real people are purely coincidental." To make the signal stronger, you misspell the university's name slightly, say, "Yael" instead of "Yale." That signals that you are operating in a parallel universe.
Note, the above is my (non-lawyer's) interpretation of U.S. law. Libel law in places like the U.K. are more pro plaintiff.
The biggest reason as far as I am concerned not to is people how have attended that school. Any error, no matter how small, will be magnified and you will get letters/emails telling you, you got it wrong. Lots of folks are very protective of places, things and professions. A mistake is treated by some as if it were a felony. With a fictional place, no one will care. You can base it on a real place, change the name, and do whatever you like without offending anyone.
I'm no legal expert, but I do know these big public universities tend to have a lot of money, and a crack expert team of lawyers just itching to fire off lawsuits. There's little downside to doing what most writers do --giving the university a different name, and lightly fictionalizing it just enough to give yourself reasonable cover. You can still think of it as Big State U in your mind.