If you have two semesters of the same subject, are the grades averaged or separate?

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Separately. Schools will see your full transcript, meaning each grade individually.
 
It will certainly raise some eyebrows, and you will have some explaining to do. But grades are reviewed holistically in terms of trends, and ADCOMs are understanding if you have a bad semester due to difficult situations in your personal life. I don't think that it will sink you, especially if it was early in your academic career, but you have to demonstrate a strong upward trend in your GPA, and definitely don't let it happen again.
 
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