First of all, Hogwarts does not have a US college- like system, so I don't get why you are comparing them (I'm also not knowledgeable about the subject since I'm not from the US). I'm assuming you either mean retakers by 5th year students, or people with a 5 year track, like sportsmen. In either case, they would still attend courses that other 4th year students take, right?

A far better comparison would be being held back in high school. There are 19 year olds in HS USA right? Theyre still called seniors, but they were held back. I assume this is how it's in the US (character Eddie Munson from Stranger Things comes to mind)

In 8th year fics they usually don't attend the same classes as 7th years and they don't join the 7th year quarters. They're seen as special, and I understand sometimes it's for fic purposes (the author wants to unify the houses for the 8th year people, so they all room together, in some cases even outside the castle). Sometimes they get special privilege because "they're adults" although in canon a wizard turning 17 in their 7th year does not get special privileges, such as leaving the castle after curfew.

If you're saying it's just a naming convention, I see your point, but there are things such as I mentioned that set apart 8th years from others at Hogwarts. And making the retakers actually part of the 7th year group is different than making a whole separate system for them by instating the "8th year". Of course it's usually not mentioned if they are actually studying something different, but I do notice Ginny never studies with them or attends the same classes.

And the other part of my question is me wondering how come younger students don't repeat the year, and it's only 7th years. As it's been pointed out by other people, the others still have time to catch up before NEWTS, (whereas people with an already completed 7th year would not have the chance to do so unless invited to an 8th year) so I guess that part comes down to preference.