A native of Oak Lawn, Illinois, Donahue attended Brother Rice High School in the Chicago Catholic League, graduating in 1974. Donahue accepted a football scholarship to the University of Michigan and played college football for the Michigan Wolverines football team from 1975 to 1977. He was a two-time consensus All-American lineman, earning the honor in 1976 and 1977. He was the 13th player in Michigan football history to be twice honored as a consensus All-American and was rated by Bo Schembechler as "one of his all-time best linemen."