Holger Badstuber has failed to earn a permanent contract at Schalke and could become a free agent if Bayern Munich do not offer the Germany international a new deal.
Badstuber has made 10 Bundesliga appearances since joining Schalke on loan in January, as he continues the long road back from four successive seasons wrecked by a string of injuries, which have plagued much of his senior career.
Reports have suggested Badstuber agreed a one-year contract extension with the Bundesliga champions before departing for Veltins-Arena.
Schalke have decided to make Yevhen Konoplyanka's loan from Sevilla permanent, and have opened talks with Chelsea over a new deal for Baba Rahman.
"We will not sign Badstuber on a permanent deal," sporting director Christian Heidel said at a news conference.
"The coach discussed things with Holger on Wednesday. We will say farewell to him on Saturday [at home to Hamburg].
"Konoplyanka will remain at Schalke beyond this season. We have sorted the formalities.
"We are still in talks with Baba and Chelsea and hope that he will still be at Schalke next season. I hope to have news in the upcoming days."
Schalke will also say farewell to vice-captain Klaas-Jan Huntelaar, who is among a group of first-team players who will be released at the end of the deals.
Netherlands international Huntelaar has scored 126 goals in 238 games since joining Schalke from AC Milan in 2010.
"We will also wave off Dennis Aogo, Klaas-Jan Huntelaar, Sascha Riether, Phil Neumann and Timon Wellenreuther. Huntelaar has achieved a lot at this club," Heidel added.