It is impossible to stay away completely from drugs when living in such an urban environment. But what makes it bearable at U of M is that every individual is respected for their choice to use or abstain. The most common drug is alcohol, especially at parties. People smoke marijuana and other drugs, too, but students don't stand around the corner smoking; such activities are confined. One will have to look for people and sources who use drugs because they aren't explicitly out there. Drinking and smoking in the dorms is banned. Campus security and cops are in the area, busting down parties that are too disruptive and keeping students in check. These violations are taken more seriously if on campus. Students in dorms who get caught have to write a reflection paper, do community service, or get kicked out of the dorm (but it is too extreme to be realistic for drinking). Drinking is a common part of college culture. Many students who didn't drink in high school try new things in college. However, it is completely acceptable for a student to say no, and still be able to enjoy time with friends. People will offer you drinks (and sometimes drugs), but declining will not affect your "coolness." Whether a student decides to indulge in alcohol and drug usage or not, their choices will be respected and will not affect their relationships with their friends.
One thing to remember is to be courteous to people around you. While some people are getting rowdy and partying in one room, the neighbor might be studying for a midterm coming up. Dinkytown on weekends can be an interesting (and often entertaining) place to be because many parties are in the area, and a lot of drunk people roam around either party-hopping or grabbing some food. But even then, there are many places for a student to hang out, away from the influence of drugs, and still have a good time.