You don't see any problem, at a publicly-funded university, with taking a quarter of the money paid by one group of folks and handing it over to others?
This isn't a matter of scholarships, it is a matter of who is paying for those scholarships.
Nobody is saying that folks can't give to a scholarship fund of their own free will.
Note that public universities normally provide subsidized educations for all students. Tuitions are partial payments against the actual costs (absurdly inflated though these are, granted). The rest of the costs of maintaining the public universities comes from the taxpayers. Its not that some get subsidized and others don’t, its all a matter of degree. Some students are subsidized more than others.
If it is the policy of the state to provide subsidized higher education (many question this, but as all US States have this institutionalized lets take it as given), and if it is in the state’s interest to have an educated population (also taken as given), and if it is in the states interest to spend money in the best possible way to get the most out of the available funds and talent (ditto), it makes perfect sense to disproportionately assist those who are poor but talented.
Once we are down the path of public higher education (and can’t go back), we must maximize its effectiveness.
My only problem with this policy (given all the givens, see above), is the criteria for obtaining a larger subsidy. If this benefit is granted due to irrelevancies or politics, as in preferences for race and gender, etc., then this is an illegitimate use of public money.