With AI, they fail later (during the exams), where as without using AI previously, they'd fail early and either course-correct, or drop out early (and suffer less of the consequences).

Not sure what the solution is - there's no possibility of stopping students using AI to complete their homework/assignments etc. But let me flip the question - do they need to be stopped? Why not let them fail at the exam? As long as the exam acts as a filter, their usage of AI to "cheat" their learning is inconsequential to anyone but themselves.

You are wrong. Some would have failed before, but not in the larger numbers. Before when they couldn’t complete an assignment they would try different things, seek a professor, or seek out friends to help explain. You could find answer keys to many assignments online, but that doesn’t feel like learning and wouldn’t even always answer your actual misunderstanding. It wasn’t perfectly tailored to your issue all the time.

Now the barrier to an answer is zero. They are basically watching a YouTube video on how to X, seeing step by step instructions feeling like they are doing it, and the moment they swing a real hammer they are whacking themselves in the crotch. It might get better after a few years, but this stuff is just now hitting mainstream for the masses. ChatGPT has only been in mainstream use for about 3 years.