It's not a failure of the system; students are, increasingly often, mistaking universities for diploma mills. Some universities gradually acquiesce, others hold their ground.
The universities that maintain their standards for graduation will typically have droves of students dropping out, because there are droves of students who do not put effort into learning the material.
Attrition rate is high in engineering - I assume it's similar for CS.
They don't all drop out of university - just the program. They usually change majors. I assume most still get a degree. People who can't handle CS usually go for BIS or something IT related.
Really? That sounds like a huge failure of the system, especially since they've gone into debt for that.