Highest dropout is after the first semester a student is enrolled in classes, regardless of scholarship type, prior service, NG/USAR. I did not see a weeding out at the 2-year mark like the service academies see.
The best Cadets I had were those who enrolled without a scholarship and earned a campus-based 3-year scholarship. Often this population did not apply as a HS student. Conservative estimate, 80% of the Distinguished Military Graduates I had over three years did not come to campus with a scholarship. They earned one on campus.
Somewhere around 18-20% of HS scholarships are 4-year, so there would not be a statistically significant difference in the quality of student. That would primarily affect enrollment at high-cost/high-demand schools (Ivy League, Notre Dame, Vanderbilt, big name private schools). Tuition would be much more of a deciding factor there than at a state school. Also, figure that the scholarship covers either tuition OR $10,000...it's not covering all the costs of school no matter what flavor the scholarship comes in. Many different ways the delta is covered (SMP, part-time employment, student loans), but there's always additional costs despite a 3/4-year ROTC scholarship. One of my universities gave me 16 room grants and we had a process for awarding those...I also had additional campus-based endowments, scholarships, and funds at the university-level that I could award to help off-set costs. There is a process that is different at every school, but there are additional opportunities out there at the program-level.
To keep a 3-year scholarship, the student has to pass ACFT, Maintain a 2.0 GPA (each semester and cumulative), a 2.0 in Military Science courses, and complete 27 semester hours.