The school said Monday that Derby, an Iowa City native, had been granted a release from his scholarship and will transfer elsewhere.
Derby thanked his coaches but said, "unfortunately, I don't feel this is the best fit for me personally to reach my goals as a student-athlete."
He initially won the backup quarterback job last fall as a redshirt freshman, completing 3 of 6 passes for 30 yards. But he was suspended for two games in October after he was arrested on charges of public intoxication and criminal mischief.
When Derby returned to action, Ferentz had him practicing at linebacker and playing in games on kickoff coverage.