Group B. Group A will likely get merit awards elsewhere if the parents don’t want to pay for them to stay in state, so they’ll get an education somewhere. They may not settle in state after graduation because upper income families can afford to help their kids get established in other states, so while the awards might benefit the families they won’t necessarily benefit the state.
The lower income kids from Group B are less likely to have the resources to move OOS. If we’re choosing only one group, I’d rather our state spend the money on the one that will be more likely to be contributing to our economy.
Although your question makes it very clear which answer you want, it sounds like your state needs to increase funding for Group B at your flagship so they can afford to finish all 4 years. Since Group A will likely graduate from some college, according to your assumptions, the question becomes do we want more college grads at a higher per diploma cost to upper income families or fewer college grads at a lower per diploma cost to upper income families? I prefer an educated populace.