The midshipmen have to apply. GPA, SAT, PFT/PFA, their history in unit, and PNS/MOI reqs are all part of the package. They even need to include a pic of themselves in uniform. The can apply spring of freshman year, and each semester through spring of sophomore year. The competition in national. There are boards just like for the high school scholarship. Based on stats I've seen in the past awardees stats are comparable to USNA appointees.
Not all midshipmen apply. I know a sophomore in good standing this year who did not apply for the scholarship because his GPA wasn't high enough. I don't know if that was his determination or if there is a certain GPA one must achieve. He is submitting a separate application for Advanced Standing. One must achieve Advanced Standing by rising junior year or you are dropped from the program. Given his leadership roles I think this guy will achieve Advanced Standing. He doesn't expect to hear until just before fall semester starts. I do not know when word comes down on spring scholarship applications but I suppose it could be as late as early August.