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I am currently a master's student planning to apply to US universities for PhD in engineering.

I has been more than 5 years since I graduated from my undergraduate institution.

The thing is, it took me 7 years to get my 4-year STEM degree, and I spent a year of it at a top-10 US university as an exchange student. But, it was a bad year and I don't have it on my transcript. So, it is like a year of my academic life does not exist in my transcript. Let's say it jumps from spring 2011 to fall 2012 on my transcript, but there is no mention of anything of my studies abroad.

It is been almost 10 years since this failed year of studying abroad. Should I include it? Omit it? I do not want to hide anything but I also do not want to include things that could hurt my application.

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    In the U.S., most applications for grad programs explicitly require accounts of all prior education experience post-high-school. You can get an official "transcript" from that institution, and this would surely be necessary for any applications. If you try to hide things, it can turn into a disaster for you. Sep 23, 2021 at 23:53

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As Paul Garrett says, if you are required to include all post-secondary transcripts than you must include it.

However, many students perform poorly at the beginning of their university studies, and what we mainly care about in graduate admissions is students' recent performance, so I don't think you should worry about it too much. (There are several questions about such situations on this site: e.g., search for something like "poor undergraduate".)

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