The university that produced England captain Andrew Strauss has been bowled out for 18, the lowest first-class innings since 1983.
Durham MCCU were demolished by Durham CCC as they recorded the 10th-lowest first-class score since 1900.
Head coach and former England opening batsman Graeme Fowler told BBC Sport: "We have had an absolute car crash."
Ex-England skipper Nasser Hussain is also among more than 40 Test and county cricketers who played for the students.
Fowler's side were dismissed in 101 deliveries as they collapsed from 15-3 to 18 all out in their second innings to lose by 373 runs.
"We have had an absolute shocker," 54-year-old Fowler continued. "Cricket is a cruel sport and I told the lads in the dressing room it is about how they bounce back from this.
"We played Middlesex in a non-first-class game at the start of the month and batted the game out, losing just three wickets in the final day."
England legend Andrew Flintoff sent his condolences to Fowler on Twitter, saying: "Remember when we got bowled out for 51 in Jamaica, case of palms up and move on! Good luck."
Durham are one of six sides - the others are Oxford, Cambridge, Loughborough, Cardiff and Leeds/Bradford - who are funded by the MCC, with each receiving around £75,000 per year.
The university has earned a stellar reputation for breeding cricketers since Fowler set up the scheme in 1996. Six county captains, including Durham's 2009 County Championship winning captain Will Smith, have since come through the ranks.
"It is important to remember the context of what the scheme does," Fowler said. "About 20% of [current England-qualified] county cricketers come through the scheme, with 8% of all county cricketers coming from Durham, so it clearly works.
"Durham have made us look like idiots but there are several lads in my dressing room who I believe can go on and play professionally at the highest level."