Majority of universities at least were I live are about five or six square blocks. Some of the larger and more expensive ones function like independant cities containing everything from shopping complexes to churches and appartment buildings. Assuming this one is more private (like U of S as opposed to UBC) the university wouldn't have a problem with students that live in cheaper appartments within commuting distance. It usually considered economically more viable since university dorms are expensive and you can't use them during the summer but I see your point about character interaction, thanks.