Spokesman Kent Brown said Bailey made the decision after meeting Thursday with coach Tim Beckman. Brown said he doesn't know Bailey's destination.
Beckman recently said that last season's primary starter, Wes Lunt, would keep that job.
Bailey, who is from Bolingbrook, Illinois, was considered a dual-threat quarterback. But in limited playing time he showed he was more polished runner than passer. In 14 games over two seasons, he completed 13-of-27 passes for 122 yards, two touchdowns and an interception.
Brown said Beckman agreed to the transfer provided Bailey doesn't move to another Big Ten school or a school Illinois plays in the next three seasons.