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<p>This has some truth in certain doctoral programs and is by no means specific to Berkeley. For example, certain departments at Caltech and MIT discourage their own undergrads from coming back their for their PhD. </p>
<p>However, other departments at those same schools are highly accomodative to their own undergrads. For example, by far the most common graduate school that MIT engineering students will matriculate at is MIT itself. </p>
<p>As far as Berkeley itself, I can say that many many Berkeley undergrads end up going to Berkeley for law school and business school. Engineering is very department specific - ChemE does not like its own undergrads, whereas EECS seems to like them.</p>