Milton began the year as the Wolverines' starter in 2020 after an offseason of hype, but he struggled as the team went 2-4.
The 20-year-old signal-caller - who was eventually benched for Cade McNamara - went 80-of-141 passing for 1,007 yards and four touchdowns against four interceptions over six appearances (five starts).
Milton will be immediately permitted to play for his next program, and he still holds three years of eligibility.
Michigan recently landed No. 2-ranked dual-threat quarterback J.J. McCarthy to bolster the position behind McNamara.