Seems they are ignoring the word "merit" in their criticisms of the scholarships. The scholarships are given strictly on the basis of "merit." That's not a popular word any more.

"...UC's concerns with the program were first raised about a year ago
by a faculty committee. It raised several complaints, including
concerns that the program tends to favor more whites, Asians and
upper-income students who demonstrate less financial need.

Among last year's National Merit Scholars at UC, 3 percent were
black, Latino or American Indian, according to UC research.

University of California Student Association President Jennifer Lilla
supports the decision and called it logical. ..."

http://www.signonsandiego.com/uniontrib/20050714/news_1n14merit.html