Collins has returned south after failing to live up to his reported £200,000 transfer fee, scoring just six times in 40 appearances.
Such was Easter Road club's apparent eagerness to get him off the wage bill, it is thought that they waived their right to a fee for a player that had two years to run on his contract.
Collins, who was brought to Hibs from Swindon last summer by Butcher's predecessor, Pat Fenlon, as a replacement for free-scoring forward Leigh Griffiths, has followed Ben Williams, James McPake, Kevin Thomson, Tom Taiwo, Paul Cairney, Alan Maybury, Sean Murdoch, Bradley Donaldson, David Gold, Paul Grant and Dean Horribine out of the Leith club.
Leeann Dempster, Hibernian's chief executive, said: "We've agreed a mutually beneficial deal with Shrewsbury and now we move on."
Collins' prospects at Hibs looked bleak when Butcher overlooked the 23-year-old for their two-legged play-off match against Hamilton.
During his spell at Shrewsbury - between January 2011 and June 2012, - Collins scored 22 goals. Last season, the club were relegated to League 2.