I think that you should keep him as a friend/acquaintance. You pretty much have three options: Ignore his bigoted comments, fight back with tolerance, or tell him that his comments make you uncomfortable. You're gonna have to deal with him for a while yet, as he's a teacher. So make sure that you keep things cordial between you, at the very least.
I have a miniature version of this with one of my friends. He's very Republican/conservative and religious. I'm very liberal and atheist. Opposites attract, maybe, because we're pretty good friends.
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