These are not really two different routes toward commissioning, they are both the same route (AROTC), just refer to different benefits the cadet is receiving.
Being a contracted cadet means that the cadet has signed a contract, agreeing to serve X amount of years in the Army, and sworn an oath of enlistment (all contracted cadets are enlisted in the USAR, specifically in the USAR Control Group (ROTC)). Not all contracted cadets are receiving an AROTC scholarship and receiving benefits for school in the form of Tuition/Fees or Room/Board. Those that are scholarship cadets, and have validated their scholarship by meeting all requirements (Medical, APFT, etc.) also become contracted, swearing an oath of enlistment and agreeing to serve X amount of years as an army officer.
I know terms get easy intertwined on this website, but these are not two different routes, both are in the ROTC program, a scholarship cadet just has an AROTC scholarship paying for their Tuition/Fees or Room/Board.
Every contracted cadet, regardless of if they have a scholarship or not, receives the monthly stipend and the book stipend. (if I'm wrong on the book stipend, someone please correct me. It's been a little bit since I was receiving this.)
Scholarship cadets will contract as soon as they meet all necessary requirements during the year the scholarship starts. Example, a 4 year scholarship recipient will contract his/her freshman year once they satisfy all requirements to contract. A 3 year scholarship cadet will contract his/her sophomore year, so on and so forth. A cadet that does not have a scholarship will contract if they are accepted into the Advanced Course (MS3 and MS4 years) and they meet all contracting requirements. Yes, this does not always happen for a variety of reasons, but technically a cadet must be contracted in order to move onto the Advanced Course.
Additionally, cadets must be contracted in order to attend any summer training (this is something that was passed down from the CG earlier this year, but does not necessarily apply to LTC this summer).
As far as your question, FutureOfficer1, regarding a scholarship your Junior/Senior year, that is very unlikely. Scholarships are used as incentives. If you are going to contract your Junior year anyways, what incentive does the Army have in giving a scholarship to you? Not saying it is impossible, but scholarships are used as incentives and recruiting tools, not just given to everyone. Get in contact with the ROO at the university you are interested in attending, he/she will be able to help you out with your individual situation.
Your second question about why ROTC requires cadets to be contracted to be in the Advanced Course? They're in the business of developing future leaders in their organization. As cool as it would be for people to just hang around for 4 years and then decide at the last minute they don't want to do the Army thing, the Army doesn't work that way. They are forecasting numbers years in advance because they have a mission (# of LT's each year to commission) they have to meet, and devoting resources to developing these cadets. Commitments have to be made because they are not just going to dish out taxpayer money for someone who is not interested in commissioning as an army officer.
He did transfer as an MS2 last year.