If it's a lagging effect, then why is the year-over-year spike in failure rates happening not just in 1st/2nd year classes, but also in a 3rd/4th year class at the same time?

Good point. I'm inclined to think it's because of a quality threshold in chatbots.

Entrance tests predict academic success , not 1st year success.

"Failure to complete the qualification" is the prediction.