The destruction wasn't caused by ill-thought-out magical frolicking at the college. Nor was it a far-reaching effect of the fall of Lie Rock or the eruption of Red Mountain.
Friends, I put it to you that Winterhold was eaten away from below by horkers.
It's the only possible explanation. There's no city under the water. There's no evidence that a collapse ever occurred. Or rather, the evidence has clearly been eaten. And the only possible culprits, wallowing around on their (understandably!) fat bellies, are several horkers.
Now, I realize that taxonomists will dispute that horkers are capable of eating solid stone. But really, what else is there for them to eat? It makes sense that in the chilled, lifeless waters, they evolved to devour lifeless stone. And over the course of the years they have clearly eaten the entire city of Winterhold.