Western International University Online Axia, University of Phoenix No contact for 5 years, then a collection notice and a negative credit mark! Phoenix, Arizona

I attended WIU in 2004/2005. During my tinier the school changed names to Axia Online. Through financial hardships and "life" I had to part ways from the school. 

Currently, I've spent the last 2 years really buckling down on my credit. I had a mis-spent youth and paid for it dearly. Now that I'm an adult with children and a career I really rely on my credit being top-notch. 

Last month, I received a collection letter for $165 saying it was from Western International University. I called the collection company immediately to dispute the claim saying I owed WIU nothing at all. They referred me directly to WIU stating that they were only a collection company and couldn't really give me any details. 

It took MANY calls (and I mean to tell you, MANY) to finally find a representative that was able to 'access my ancient account'. Once in, he was a very polite guy and stated that the $165 was Administrative fees (BULL!) and he couldn't really elaborate because he wasn't quite sure beyond that. To his credit, he really tried. He was cool. So I figured, you know, things happen, stuff falls through cracks, no big deal. I asked him since I've not received anything in 5 years about this, would it show on my credit report. He gave the canned "It shouldn't". He advised I just called the collection company back and work it out with them. 

Ok, no big deal. 

After hanging up with him I call the collection company back, paid the $165 over the phone with a check and called it a day. I asked since this is new and my first notice, would it be on my credit? I got a very resound "NO, It sure won't!"

Well....

I subscribe to Credit Informer and this morning I get my quarterly credit update. Guess what's on it? A big NEGATIVE mark from Western International University for a 'charge off' of $165!!! Want to know what my credit score did? It dove just under 40 points. 

This is absolutely preposterous. I would have contacted the university today, but it's Sunday, they're closed, and being so mad, I probably wouldn't have made it to the magical rep who could actually access my account without losing dignity and cussing. 

So here's my take:
I'm getting hammered on my credit for a bill that didn't appear for 5 years and I was kind enough to pay and not question too hard, and my credit is absolutely paying dearly for it. 

How can I go about disputing this with WIU without getting the run around. I paid their phantom bill without question the very day I got it and should not have to look at that NEGATIVE mark on my credit for the next 7 years. This seems awful fishy and I probably should've questioned it harder but I'm bad for taking things at face value and going on. I DESPISE conflict. 

What's my next course of action?