CONGRESS OF THE UNITED STATES

CONGRESSIONAL BUDGET OFFICE

A

PAPER

FEBRUARY 2004

Educational 

Attainment and 

Compensation of 

Enlisted Personnel

CBO

The Congress of the United States O Congressional Budget Office

CBO

Educational Attainment and Compensation 

of Enlisted Personnel

February 2004

A

PAPER
Notes

Numbers in the text, tables, and figures of this report may not add up to totals because of 

rounding.

Unless otherwise indicated, all years referred to in this report are fiscal years.

The cover photo shows an enlisted member of the Navy stationed in Naples, Italy, studying 

for a class offered by the University of Maryland, Europe. The photo is courtesy of the U.S. 

Navy and was taken by Photographer’s Mate 3rd Class Heather Warick.
Preface

Over the past two decades, the proportion of enlisted service members—particularly 

midcareer and senior enlisted personnel—with some postsecondary education has increased. 

The Department of Defense (DoD) has responded to that increase by awarding higher-thanaverage pay raises to all midlevel and senior enlisted personnel.

This Congressional Budget Office (CBO) paper—prepared in response to a request from the 

Senate Budget Committee—examines the basis for those targeted pay raises. It reviews trends 

in the educational attainment of the enlisted force and analyzes the effect of education on the 

retention of enlisted personnel with 3 to 17 years of service. The paper also compares total 

compensation for enlisted personnel (including retirement and medical benefits) with compensation for civilian workers of similar ages and levels of experience. Finally, the paper looks 

at alternative ways to increase the quality of the enlisted force that could be more cost-effective 

than targeted pay raises. In keeping with CBO’s mandate to provide objective analysis, this 

paper makes no recommendations.

Adebayo Adedeji of CBO’s National Security Division wrote the paper under the supervision 

of Deborah Clay-Mendez and J. Michael Gilmore. At CBO, Daniel Frisk provided valuable 

assistance in describing the higher education programs that DoD offers to military personnel, 

Chad Goldberg helped with data processing, and Carol Frost provided programming assistance for the statistical analyses. Nabeel Alsalam, Robert Dennis, Cary Elliot, Seth Giertz, 

Roger Hitchner, Arlene Holen, and Elizabeth Robinson of CBO offered thoughtful comments on an earlier draft, as did Glen Gotz of the Institute for Defense Analyses.

Christian Spoor edited the paper, and Juyne Linger proofread it. Maureen Costantino 

designed the cover and prepared the report for publication. Lenny Skutnik produced the 

printed copies, and Annette Kalicki prepared the electronic versions for CBO’s Web site 

(www.cbo.gov).

Douglas Holtz-Eakin

Director

February 2004

Summary and Introduction 1

Educational Trends and Pay Targeting by DoD 1

The Cost of Targeted Raises 2

An Alternative View of Rising Education Levels 3

Policies to Enhance the Quality of the Enlisted Force 3

The Educational Characteristics of the Enlisted Force and 

the Impact on Retention 4

Trends in Educational Attainment 4

The Relationship Between Education and Retention 5

The Rewards to Education in the Military and

Private Sector 8

How the Military Rewards Education 9

Enlisted and Civilian Compensation for People

with Different Levels of Education 10

The Uncertain Policy Implications of Rising Educational

Attainment for Enlisted Compensation 16

Could Educational Trends and Quality Be an Issue

in the Future? 17

Alternative Policies to Enhance the Quality of the

Enlisted Force in the Future 17

Appendix: Details of CBO’s Analysis of Retention 21

CONTENTS
vi EDUCATIONAL ATTAINMENT AND COMPENSATION OF ENLISTED PERSONNEL

Tables

1. The Effect of Education on the Probability of Staying in the Military 10

A-1. Selected Characteristics of the Sample 21

A-2. Results of Estimated Logit Equations for Retention of Enlisted

Personnel 23

Figures

1. Percentage of Enlisted Personnel Who Report Having

One or More Years of College Education, by Years of Service 4

2. Change in the Educational Attainment of the Enlisted Force

Since Entering the Service 5

3. Education and Pay Grade in the Enlisted Force 8

4. Percentage of Enlisted Personnel Who Are “Fast Trackers,”

by Highest Level of Education Attained 12

5. Average Earnings of Enlisted Personnel, by Highest Level

of Education Attained and Years of Service 13

6. The Cost of Enlisted Personnel to DoD Compared

with the Cost of Civilian Workers to Private Employers 14

7. Annualized Pay Advantage of Military Service Over

Civilian Employment for Enlisted Personnel,

by Highest Level of Education Attained and Years of Service 16

8. Continuation Rates for Active-Duty Enlisted Personnel,

by Years of Service 17

Boxes

1. Voluntary Education Benefits for Enlisted Personnel 6

2. Data Used in CBO’s Retention Analysis 9

3. The Role of Postsecondary Education in the Promotion Process

for Enlisted Personnel 11

4. The Annualized-Cost-of-Leaving Approach to Comparing Military 

and Civilian Pay 15
Educational Attainment and Compensation

of Enlisted Personnel

Summary and Introduction

The educational attainment of the military’s enlisted 

force—like that of civilian young people as a whole—is 

on the rise. That increase has raised concerns within the 

Department of Defense (DoD) about the adequacy of 

compensation for midcareer enlisted personnel.1

 From 

2000 through 2004, such concerns led DoD to target annual raises in basic pay to those personnel (as well as to 

senior enlisted service members to keep their pay above 

that of midcareer personnel). DoD will have to budget 

roughly $1.6 billion in 2004 to cover those targeted pay 

raises.2

 Additional targeted pay raises, which would increase the annual cost to $2 billion, were in DoD’s budget plans for 2005 and 2006 but have not been included 

in the President’s budget request for 2005. 

The Congressional Budget Office (CBO) has analyzed 

the relationship between educational attainment and retention among enlisted personnel. The analysis suggests 

that targeted pay raises are not necessary to support 

DoD’s ability to compete with private employers for 

high-quality personnel. Although the percentage of the 

enlisted force with education above the high school level 

is rising at each pay grade and year of service, that trend 

may not mean that higher military pay is needed to compete with the private sector. Instead, it could indicate that 

rising in-kind and cash benefits have made a military career financially attractive not only to people with high 

school degrees but also to many with some college education. If that interpretation is correct, the resources devoted to targeted pay raises might be freed to address 

other personnel concerns—including compensation for 

active and reserve members who are undergoing frequent 

or hazardous deployments. 

In the future, it is possible that DoD’s ability to maintain 

the current quality of the enlisted force could be affected 

by increased educational attainment in the civilian and 

military sectors, coupled with an improved civilian labor 

market and more frequent and difficult military deployments. Even in that event, however, personnel policies 

that focused specifically on the best performers—including people who were promoted the most rapidly—might 

enhance quality at a lower cost than would pay raises targeted broadly to midlevel and senior personnel. 

Educational Trends and Pay Targeting by DoD 

The proportion of the enlisted force with postsecondary 

education (some college, a two-year associate’s degree, a 

bachelor’s degree, or higher) rose from 30 percent in 

1985 to 74 percent in 1999 and continues to increase. 

Among the most senior personnel—those in pay grades 

E-8 and E-9—more than half now have at least an associate’s degree.

The trend toward higher educational attainment is not 

limited to the enlisted force. In the U.S. population as a 

whole, the proportion of high school graduates between 

the ages of 25 and 29 with at least some postsecondary 

education rose from 52 percent in 1990 to 66 percent in 

2000.3 That trend is driven in part by increases in the pay 

of workers with postsecondary education relative to the 

pay of high school graduates. 

1. Midcareer enlisted personnel (noncommissioned officers), as 

defined by the Quadrennial Review of Military Compensation, 

are those in pay grades E-5 to E-7 with 6 to 20 years of service. 

2. A targeted pay raise is one that is greater, in percentage terms, 

than the pay raises provided to enlisted personnel as a whole 

(which currently equal the annual change in the civilian employment cost index plus 0.5 percentage points). The $1.6 billion figure represents the difference between the current pay of midcareer 

and senior enlisted personnel and what their pay would have been 

had they not received targeted pay raises since 2000.

3. It is unclear whether that trend will continue among young males. 

The proportion of male 25- to 29-year-old high school graduates 

with some college education peaked at 64 percent in 1997 and 

declined to 63.5 percent by 2000.
2 EDUCATIONAL ATTAINMENT AND COMPENSATION OF ENLISTED PERSONNEL

DoD, consistent with the position of the Ninth Quadrennial Review of Military Compensation and other 

analyses, has cited those trends as grounds for providing 

midcareer and senior noncommissioned officers with annual pay raises that exceed those planned for the military 

overall.4

 For example, Under Secretary of Defense David 

Chu told the Congress in 2003 that pay raises targeted to 

midcareer and senior enlisted personnel were necessary 

because “increased educational attainment on the part of 

the enlisted force has made the existing military pay 

structure less competitive.”5

Supporters of targeted raises do not maintain that DoD 

needs an enlisted force with greater formal education (although some senior leadership positions in that force are 

often held by people with postsecondary degrees and may 

benefit from the capabilities that formal education provides). Instead, they argue that in the past, when many 

highly capable young people did not have access to higher 

education, DoD could attract and retain the quality of 

personnel it needed without offering in-service educational opportunities or the pay that education commands 

in the private sector. It needed only to offer a similar pay 

profile to that for high-quality high school graduates in 

the private sector. But today, the argument goes, DoD 

must draw and retain personnel from a more highly educated population to meet its quality goals for the enlisted 

force.

DoD’s targeted raises are designed to make the cash earnings of midcareer enlisted personnel (like those of similarly educated civilians) rise more steeply with years of 

service.6

 In 2004, DoD’s long-term budget plans called 

for continuing targeted pay raises through 2006. The 

goal was that by 2006, regular military compensation 

(RMC) for midcareer enlisted personnel would equal the 

wages and salaries of the 70th percentile of civilian workers with similar years of work experience and some college education.7 (The lack of targeted pay raises in the 

President’s 2005 budget indicates that those plans are being deferred or possibly changed.)

The Cost of Targeted Raises

Besides their annual cost in the DoD budget, raises targeted to midcareer and senior enlisted personnel have expanded the unfunded liability of the military retirement 

system.8

 The targeted raises given in 2000, 2001, and 

2002 have increased that system’s unfunded liability by 

approximately $5 billion (the increase resulting from the 

raises in 2003 and 2004 has not yet been determined).9

Under the current accrual system for military retirement, 

the unfunded liability rises when senior personnel—who 

are about to retire and receive pensions based on their 

highest three years of earnings—get percentage pay increases that exceed those for more-junior personnel. 

The cost of the higher pensions for people about to retire 

is covered by the Treasury rather than by DoD.10 Thus, 

targeted pay raises are less expensive, and possibly more 

attractive, to DoD than they are to the federal government as a whole.

4. See Department of Defense, Office of the Under Secretary of 

Defense for Personnel and Readiness, Report of the Ninth Quadrennial Review of Military Compensation, vol. II (May 2002), 

available at www.dod.mil/prhome/qrmc/v2/index.htm.

5. Statement of David S.C. Chu, Under Secretary of Defense for 

Personnel and Readiness, before the Total Force Subcommittee 

of the House Armed Service Committee, March 13, 2003. In a 

recent interview, however, Under Secretary Chu noted that because of the “pressure of current operations,” there was growing 

uncertainty about targeted raises in the next year or two. See Rick 

Maze, “No Targeted Pay Hikes in ‘05,” Army Times, February 9, 

2004, p. 10.

6. They could also provide an incentive for retention to more-junior 

personnel.

7. Regular military compensation is the sum of basic pay, allowances 

for housing and subsistence, and the federal tax advantage that 

accrues because those allowances are not taxed. For more information on the structure of military pay, see Congressional Budget 

Office, What Does the Military “Pay Gap” Mean? (June 1999); for 

details about the military’s noncash benefits, see Congressional 

Budget Office, Military Compensation: Balancing Cash and Noncash Benefits (January 16, 2004). 

8. The military retirement fund holds government securities that are, 

in effect, intragovernmental IOUs. Thus, all future military retirement costs are unfunded in the sense that they are yet to be paid 

by taxpayers, but there is no fund of accumulated assets that can 

be tapped. However, this paper uses the term “unfunded liability” 

as it is used conventionally in government budgeting—that is, the 

difference between the liability of the retirement system and the 

value of the government securities held, for bookkeeping purposes, by that system. 

9. The $5 billion figure is an estimate by the Congressional Budget 

Office based on data for enlisted personnel provided by DoD’s 

Office of the Actuary.

10. Accrual charges are set as a percentage of basic pay so that payments over the life of an incoming cohort of recruits are expected 

to cover the cost of that cohort’s eventual retirement. A large, 

unexpected increase in pay at the end of a cohort’s career will 

mean that the contributions made on behalf of that cohort will 

not equal the actual cost of the cohort’s retirement, increasing the 

liability to be paid by the Treasury. 
EDUCATIONAL ATTAINMENT AND COMPENSATION OF ENLISTED PERSONNEL 3

An Alternative View of Rising Education Levels

This paper offers an alternative perspective on the implications that educational trends among enlisted personnel 

have for compensation. The pay of the enlisted force rose 

relative to that of similarly aged and experienced high 

school graduates in the private sector during the 1980s 

and 1990s.11 Increases in the educational attainment of 

midcareer and senior enlisted personnel in recent years 

may be a signal not that pay must rise to be competitive 

but that the total level of military compensation is increasingly attractive not only to high school graduates but 

also to people with some postsecondary education. 

The statistical analysis performed for this paper provides 

no evidence that among senior enlisted personnel (those 

with 12 to 17 years of service), postsecondary education 

reduces their retention. Moreover, because many senior 

personnel pursue additional education, the proportion of 

the enlisted force with postsecondary education rises 

sharply with both years of service and pay grade. Growth 

over time in the percentage of senior enlisted leadership 

positions held by people with associate’s or bachelor’s degrees could be an indication that DoD is increasingly successful in meeting its needs for high-quality, educated enlisted leaders.

Previous research by CBO questions the value of using civilian benchmarks to set military pay, given the significant differences between civilian and military life.12

DoD’s ability to meet its personnel requirements is the 

best indicator of whether pay is competitive, particularly 

in a period of conflict when more is being asked of military personnel. 

Nonetheless, if pay comparisons are to be made, a comprehensive approach would take into account retirement 

pay and medical benefits in both the military and civilian 

sectors. Using such an approach, CBO finds that the cost 

to DoD of compensating an enlisted service member already exceeds the cost to a private employer of compensating a civilian who has some college education and is in 

the 70th percentile of earnings (DoD’s goal). Instead, the 

total employment cost of an enlisted member is comparable to that of the median civilian worker with a bachelor’s degree.13 Moreover, although RMC is relatively flat 

during the midcareer years, the financial advantage of 

continued military service—taking into account retirement benefits—rises much more sharply than do the 

wages of comparable civilian workers. 

Policies to Enhance the Quality of the Enlisted Force

Although senior military leaders acknowledge that the 

quality of today’s enlisted force is unsurpassed, recruiting 

and retention can change quickly because of shifts in the 

civilian economy and in the demands that the military 

places on service members. In the future, DoD could 

have trouble maintaining the quality of its enlisted force. 

Moreover, as technologies and military doctrine change, 

it is also possible—though by no means certain—that 

many tasks now performed by high school graduates 

could require greater formal education. 

Even in that case, however, setting benchmarks for military pay might not be a cost-effective practice. Analysts at 

the RAND Corporation, the Center for Naval Analyses, 

CBO, and elsewhere have identified several more-focused 

—and thus potentially less costly—policies that DoD 

might use if it needed in the future to improve the quality 

and performance of the enlisted force.14

One option would be to increase the importance of promotions, as opposed to longevity, in the pay table. Another would be to boost the speed at which the best-performing personnel were promoted. That approach might 

require increasing the percentage of E-8 and E-9 personnel in the force, as well as introducing an E-10 pay grade 

so that people promoted early to E-9 could still have the 

opportunity for career growth. Still another alternativewould be to widen the range of career paths by expanding

11. See Beth J. Asch, James R. Hosek, and John T. Warner, “An 

Analysis of Pay for Enlisted Personnel,” and James Hosek, “A 

Recent History of Military Compensation Relative to Private Sector Compensation,” both in Department of Defense, Office of the 

Under Secretary of Defense for Personnel and Readiness, Report of 

the Ninth Quadrennial Review of Military Compensation, vol. II 

(May 2002). 

12. See, for example, Congressional Budget Office, What Does the 

Military “Pay Gap” Mean?

13. That employment-cost approach values retirement pay and medical benefits at their expected present discounted value. The value 

of retirement benefits from a service member’s perspective will be 

much greater for those who actually reach retirement and zero for 

those who do not.

14. See, for example, Congressional Budget Office, The Warrant 

Officer Ranks: Adding Flexibility to Military Personnel Management

(February 2002); Congressional Budget Office, Military Pay and 

the Rewards for Performance (December 1995); and Aline Quester 

and Sgt. Major Gary Lee (ret.), “Senior Enlisted Personnel: Do 

We Need Another Grade?” (briefing by the Center for Naval 

Analyses, December 2001).
4 EDUCATIONAL ATTAINMENT AND COMPENSATION OF ENLISTED PERSONNEL

Figure 1.

Percentage of Enlisted Personnel Who Report Having One or More Years of College Education, by Years of Service

(Percent)

Source: Congressional Budget Office based on the Defense Manpower Data Center’s Survey of Active Duty Personnel, 1985, 1992,

and 1999. 

current programs that allow enlisted personnel to be 

commissioned as officers or warrant officers. Only the officer commissioning programs would be aimed directly at 

people with postsecondary education. Nonetheless, because education is positively correlated with job performance, all of those policies could increase the quality of 

the force and, incidentally, the attractiveness of the military to enlisted personnel with postsecondary education. 

The Educational Characteristics

of the Enlisted Force and the

Impact on Retention

Educational attainment within the enlisted force is clearly 

rising (see Figure 1). However, the statistical evidence 

about the impact of rising education on the retention of 

enlisted personnel is inconclusive.

Trends in Educational Attainment

The enlisted force is far more educated today than it was 

two decades ago. In 1985, 30 percent of all enlisted personnel had one or more years of college education. By 

1999 (the most recent year for which reliable survey data 

are available), that share had more than doubled to 74 

percent—53 percent with some college credits but no degree, 12 percent with associate’s degrees, 8 percent with 

bachelor’s degrees, and 1 percent with advanced degrees.

Many of today’s enlisted personnel gained their postsecondary education while on active duty. About 60 percent 

of enlisted personnel surveyed in the Defense Manpower 

Data Center’s 1999 Survey of Active Duty Personnel reported having no more than a high school-level education 

when they began their military service.15 By the time of

1985 1992 1999

0

10

20

30

40

50

60

70

80

90

100

4 or Fewer Years

5-6 Years

7-10 Years

11-14 Years

15-16 Years

17-20 Years

21 or More Years

15. The services’ recruiting records indicate that at least 90 percent of 

new recruits have a high school-level education. However, the 

1999 survey data indicate that many of those recruits also have at 

least some college credits.
EDUCATIONAL ATTAINMENT AND COMPENSATION OF ENLISTED PERSONNEL 5

Figure 2.

Change in the Educational Attainment 

of the Enlisted Force Since Entering 

the Service

(Percent)

Source: Congressional Budget Office based on the Defense

Manpower Data Center’s 1999 Survey of Active Duty

Personnel.

the survey, however, only 23 percent remained at that 

level (see Figure 2). The armed services offer enlisted 

members a variety of education benefits, some of which 

can be used after leaving the military and some of which 

can be used while serving (for more details about those 

benefits, see Box 1). The ability to gain education while 

on active duty means that educational attainment generally rises with years of service (see Figure 1). It also rises 

with pay grade (see Figure 3 on page 8). For example, although 50 percent of enlisted personnel with more than 

20 years of service have at least an associate’s degree, the 

figure for the subset of E-9 personnel with more than 20 

years of service is 60 percent.

The Relationship Between Education and Retention 

The implications of those trends depend in part on the 

effect that education has on the retention of high-quality 

military personnel. Some enlisted members who obtain 

postsecondary schooling will leave the military to take advantage of their increased civilian opportunities or to finish their education using the Montgomery GI Bill. At the 

same time, however, the military’s efforts to increase inservice education benefits could attract some high-quality 

personnel who value those opportunities and who might 

choose to remain in the military to take advantage of 

them.16

To provide some insight into the association between education and retention, CBO conducted a statistical analysis of the retention decisions of three groups of service 

members—early-career enlisted personnel (those with 3 

to 6 years of service), midcareer personnel (7 to 11 years 

of service), and senior personnel (12 to 17 years of service). For each group, CBO used logit equations to estimate the probability that individuals nearing a decision 

point for reenlistment would remain in the military. The 

analysis employed a specially constructed data set from 

the Defense Manpower Data Center that combined survey and administrative data (see Box 2 on page 9). Sample sizes for the groups ranged from about 500 to 900.

The analysis controlled for the effects on reenlistment behavior of a wide range of personal characteristics, including race, sex, and whether the individual was in an exceptionally high pay grade given his or her years of service. 

However, the primary purpose of the analysis was to determine whether service members with postsecondary education—some college course work, an associate’s degree, 

a bachelor’s degree, or higher—were more or less likely to 

leave the military than otherwise similar members with 

no more than a high school education. The analysis was 

also designed to determine whether acquiring that education while on active duty, as opposed to before enlistment, had any impact on retention.

CBO found that in the case of personnel with 12 to 17 

years of service, there was no meaningful statistical evidence that education had any effect on retention. (The 

education coefficients in the equation were all statistically 

insignificant and had a mix of positive and negative signs; 

see Table A-2 in the appendix.) That result was expected 

given that for personnel with those years of service, the 

prospect of retirement benefits offers a strong incentive 

for reenlistment. 

For personnel with 7 to 11 years of service, there was limited evidence that those with postsecondary education—

about 80 percent of the members with those years of service—are less likely to remain in the military than otherwise similar individuals. (In the equation for that group, 

five of the six coefficients on the education variables were

 High

School

 Some

College

Associate's

 Degree

 Bachelor's

 Degree

 Advanced

 Degree

0

10

20

30

40

50

60

70

Education at Entry

Education at Time

of Survey (1999)

16. See Federico E. Garcia, Capt. Ernest H. Joy, and David L. Reese,

Effectiveness of the Voluntary Education Program, CRM 98-40 

(Alexandria, Va.: Center for Naval Analyses, April 1998). 
6 EDUCATIONAL ATTAINMENT AND COMPENSATION OF ENLISTED PERSONNEL

negative, and two of the six were statistically significant, 

albeit weakly). For that particular sample, acquiring a 

bachelor’s degree while on active duty was associated with 

a reduction of 35 percentage points in the probability of 

reenlistment, compared with similar individuals who had 

only a high school degree (see Table 1 on page 10).17 Service members who earned a bachelor’s degree or higher 

while on active duty account for just 3 percent of enlisted 

personnel with 7 to 11 years of service, but they make up 

8 percent of the people in that group who receive exceptionally rapid promotions and thus might be considered 

the best performers.18 Moreover, further investigation 

Box 1.

Voluntary Education Benefits for Enlisted Personnel

Enlisted personnel in the Army, Navy, Air Force, and 

Marine Corps receive a number of voluntary 

education benefits. Those benefits can be broadly 

classified as tuition-support programs or creditconversion programs. Tuition-support programs 

help defray the cost of education before, during, or 

after active duty. Credit-conversion programs enable 

enlisted personnel to use courses, occupational training, and on-the-job skills as credit toward a college 

degree or vocational certificate. Some of the major 

examples of both types of programs are described 

below.

The best-known education assistance program is the 

Montgomery GI Bill (MGIB). Administered by the 

Department of Veterans Affairs, the GI Bill provides 

36 months of education assistance to participants, 

up to approximately $1,000 per month. Although 

active-duty personnel can participate in the program, 

most MGIB funds go to military veterans. MGIB 

benefits can be used for degree and certificate programs, flight training, apprenticeship or on-the-job 

training, license and certification tests, and correspondence courses. When used in conjunction with 

MGIB, the service college fund (“kickers”) programs 

currently offered by the Army, Navy, and Marine 

Corps provide up to about $50,000 in total assistance. (Kickers are enlistment incentives designed to 

attract qualified personnel for critical and hard-to-fill 

occupational specialties.) In 2002, more than 

320,000 veterans and service members trained under 

the GI Bill.

The mainstay of education benefits during active 

duty is the Military Tuition Assistance (TA) program. The same for all of the services, TA provides 

tuition and fee assistance for voluntary, off-duty college courses and degree programs. Participants are restricted to a maximum of $250 per semester unit of 

tuition assistance, or up to $4,500 of aid per fiscal 

year. Twenty percent of the active-duty force used 

TA benefits in 2002. MGIB participants are also eligible for the Tuition Assistance Top-Up Program, in 

which the Department of Veterans Affairs pays tuition and fees not covered by TA, up to the monthly 

MGIB benefit. More than 30,000 service members 

received benefits under Tuition Assistance Top-Up in 

2002.

For active-duty personnel with existing college debts, 

the Army, Navy, and Air Force offer loan repayment 

programs to assist in paying off federally insured student loans. Payment details vary by service. For example, the Army pays either one-third of a participant’s debt or $1,500—whichever is greater—for 

each year of service (a three-year enlistment is required). 

Because of frequent relocations, active-duty enlisted 

personnel may have trouble using tuition-support 

programs to the full extent possible. To alleviate residency requirements, DoD created the Servicemembers Opportunity Colleges (SOC) program. SOC 

comprises about 1,700 colleges and universities that 

offer associate’s, bachelor’s, and graduate-level 

degrees to service members. The schools agree to

17. Because of the large standard error, the true effect of education 

could be much lower or higher than indicated by the estimated 

coefficient. 

18. Another 3 percent of people with those years of service had acquired a bachelor’s degree or higher before entering active duty, 

but the estimated effect on retention of entering with a bachelor’s 

degree, although negative for those years of service, was not statistically significant.
EDUCATIONAL ATTAINMENT AND COMPENSATION OF ENLISTED PERSONNEL 7

reveals that of the personnel with bachelor’s degrees and 7 

to 11 years of service who opted to remain in the military, 

18 percent became warrant officers or commissioned officers within three years (compared with 4 percent of all 

personnel in those years of service who reenlisted). Although those service members stayed in the military, they 

may not have considered the pay track for enlisted personnel attractive. 

The relationship between education and reenlistment is 

less clear among personnel with 3 to 6 years of service. 

The only statistically significant finding for that earlycareer group was that the 3 percent who earned an associate’s degree while on active duty were 25 percent less 

likely to remain in the military than otherwise similar service members. One explanation could be that many of 

the people who earn an associate’s degree in their first 

term of service have a strong interest in higher education 

and plan to leave the military to use their GI Bill benefits. 

Overall, this analysis provides some limited support for 

the view that military personnel with 3 to11 years of serBox 1.

Continued

transfer credits among themselves, so enlisted personnel do not have to retake coursework if their duty 

station changes. SOC coordinates degree programs 

for the Army (SOCAD), Navy (SOCNAV), and Marine Corps (SOCMAR). Participants must develop a 

degree plan and complete at least 25 percent of their 

degree requirements with their designated “home” 

college.

Although SOC courses are generally taught in a traditional classroom setting, distance learning is possible within the SOC network. The Army’s eArmyU 

program enables enlistees to complete coursework 

entirely over the Internet. The Navy College Program for Afloat College Education (NCPACE) allows Navy and Marine personnel to take courses via 

paper correspondence, CD-ROM, video teleconferencing, and the Internet. NCPACE also brings instructors on board Navy ships.

Tests and military schools are other means of earning 

college credits. The Defense Activity for Non-Traditional Education Support (DANTES) administers a 

range of examinations for credit and for admission to 

college or graduate school. Exams available at no cost 

to service personnel include College Level Examination Program (CLEP) general exams, CLEP subject 

exams, the DANTES Subject Standardized Tests 

(DSST) program, Regents College exams, and others. More than 212,000 tests were administered to 

active-duty, Reserve, and National Guard personnel 

in 2002. Military coursework and occupational specialty training relevant to individual degree requirements can also count as credit. The American Council on Education evaluates many military courses for 

credit, although colleges have the final say on 

whether to accept those credits.

The Air Force does not have a college fund or a specific SOC program. Instead, it operates the Community College of the Air Force (CCAF), an accredited 

two-year college that allows Air Force personnel to 

earn associate’s degrees in such fields as aircraft and 

missile maintenance, electronics and telecommunications, allied health, logistics and resources, and 

public and support services. As in the SOC program, 

credits toward a CCAF degree can be accumulated at 

Air Force advanced training schools, at colleges that 

offer accredited courses, and through credit by examination.

For vocational education, the military’s Certification 

Program enables enlisted personnel to earn certification in a specialized technical field on the basis of 

military training. A number of national trade associations—in fields such as broadcast engineering, 

medical technology, food preparation, and automotive repair—have agreements with DANTES to 

recognize military training and certification exams. 

Service-specific certification programs include the 

Army’s Credentialing Opportunities On-Line 

(COOL) program and the Navy’s United Services 

Military Apprenticeship Program (USMAP).
8 EDUCATIONAL ATTAINMENT AND COMPENSATION OF ENLISTED PERSONNEL

Figure 3.

Education and Pay Grade in the Enlisted Force

(Percent)

Source: Congressional Budget Office based on the Defense Manpower Data Center’s 1999 Survey of Active Duty Personnel.

vice and some higher education—particularly those who 

earn an associate’s or bachelor’s degree while on active 

duty—find a full enlisted career less attractive than do 

other enlisted personnel. Yet because of the relatively 

small percentage of members with those years of service 

who receive such degrees (rather than simply complete 

some college courses), that finding does not mean that 

DoD is unable to retain sufficient numbers of high-quality personnel—with or without higher education—to 

meet its needs for more-senior personnel. 

This analysis could, however, raise some questions about 

the effectiveness of in-service education programs as a 

tool for retention.19 But even if such programs have a 

negative effect on retention, they may be desirable for 

other reasons. They may provide society with a bettereducated workforce and meet a perceived obligation to 

encourage young recruits to make the most of their capabilities. In addition, an association between education 

and low retention does not necessarily mean that one 

causes the other. It may be that many of the people who 

currently seek education while in the military are members of a self-selected group with little interest in a lifelong military career. In that case, a policy of encouraging 

enlisted personnel who might not otherwise take advantage of in-service education to do so could still have a 

positive effect on their retention.

The Rewards to Education in the

Military and Private Sector

CBO’s analysis does not indicate that rising educational 

attainment in the enlisted force is affecting DoD’s ability 

to retain the high-quality personnel it needs. Nevertheless, the returns on postsecondary education in the enlisted ranks are limited. In the civilian economy, people 

who earn academic degrees can move on to new positions 

that involve greater responsibilities, a wider range of 

skills, and significantly higher pay. In the military, positions that command the pay associated with higher acaE-1 E-2 E-3 E-4 E-5 E-6 E-7 E-8 E-9

0

10

20

30

40

50

60

70

80

90

100

High School

Some College

Associate's Degree

Bachelor's Degree

Advanced Degree

19. Other studies have found different results than this analysis. For 

evidence that the Navy’s in-service Voluntary Education 

(VOLED) program, which provides sailors with opportunities for 

off-duty postsecondary education, has a positive effect on retention, see Garcia, Joy, and Reese, Effectiveness of the Voluntary Education Program. 
EDUCATIONAL ATTAINMENT AND COMPENSATION OF ENLISTED PERSONNEL 9

demic degrees are typically held by officers; enlisted 

members with higher education receive almost the same 

earnings as other enlisted personnel with the same years 

of military service. 

That limitation could make military service less attractive 

to young enlisted personnel with college degrees. But 

even so, under promotion policies in which years of service play a major role, targeting pay raises to all midcareer 

and senior enlisted personnel will do little to increase the 

returns on education in the military. Moreover, under the 

current system of military retirement, the financial benefits of continuing to serve rise steeply for all midlevel and 

senior personnel approaching 20 years of service. For 

those personnel, military compensation exceeds the compensation of the 50th percentile of civilians with bachelor’s degrees. Thus, for midcareer and senior personnel, 

the financial returns from continued military service—although largely independent of educational attainment—

may still be greater than the returns from civilian work.

How the Military Rewards Education

In the armed forces, where basic pay is determined by 

rank and years of service, the financial rewards that enlisted personnel receive for acquiring postsecondary education depend on the impact that education has on their 

speed of promotion. The services give only limited direct 

weight to education in determining promotions (for details about the promotion process, see Box 3 on page 11). 

Nonetheless, education will contribute to more rapid 

promotions—and thus to higher pay—if it makes people 

more productive in their current jobs or adds to their potential for growth. In addition, even if education by itself 

does not make enlisted personnel more valuable to the 

military, it will be associated with rapid promotion to the 

extent that it is correlated with other characteristics—

such as initiative and commitment—that are rewarded by 

promotion.

An analysis of data from DoD’s 1999 Survey of Active 

Duty Personnel indicates that the more formal education 

enlisted members have, the more likely they are to be 

among those with the fewest years of service for their pay 

grade and branch of service. For example, 29 percent of 

enlisted personnel with a bachelor’s degree or higher can 

be considered “fast trackers”—people who have relatively 

few years of service given their pay grade—compared 

with only 9 percent of enlisted personnel who have no 

more than a high school education (see Figure 4 on page 

12).20

Box 2.

Data Used in CBO’s Retention Analysis

Most analyses of military retention are conducted using administrative records that contain information 

about individual military personnel, such as rank, 

age, sex, and dates of entry or departure from military service. However, some of that information—

including details about the individual’s highest educational attainment—is not used for official purposes; thus, it may not be updated as changes occur 

and is often inaccurate. That inaccuracy has hampered efforts to identify trends in educational attainment among the enlisted force and the relationship 

between education and retention.

The Congressional Budget Office’s analysis is based 

on data provided by the Defense Manpower Data 

Center that combine survey information on the 

educational attainment of 15,000 enlisted personnel 

(derived from the 1999 Survey of Active Duty Personnel) with administrative records for those individuals, including exits from military service. That 

combination of survey and administrative data may 

provide a more accurate basis for analysis. (More information about the data set can be found in the appendix.)

20. For that analysis, fast trackers are defined as people in the lowest 

percentiles of years of service for their pay grade. The cutoff for 

fast trackers was as close to the 10th percentile as possible (that is, 

90 percent of the personnel in that pay grade had more years of 

service). However, cutoffs as high as the 15th percentile were necessary in situations in which more than 10 percent of personnel 

were in the lowest years of service for their pay grade.
10 EDUCATIONAL ATTAINMENT AND COMPENSATION OF ENLISTED PERSONNEL

Table 1.

The Effect of Education on the Probability of Staying in the Military

Source: Congressional Budget Office.

Note: * = statistically significant at the 90 percent level; ** = statistically significant at the 95 percent level.

a. The coefficient of this variable (bachelor's degree or higher) in the statistical analysis for this group has a very large standard error. The 

coefficient is not significant in a statistical sense. (For more details, see Table A-2 in the appendix.)

Faster promotion notwithstanding, the advantages of 

rank enjoyed by enlisted personnel with higher education 

are relatively small, especially when expressed in dollar 

terms. On average, enlisted personnel in a given year of 

service with an associate’s degree earn only about $1,000 

more per year in regular military compensation than a 

similar enlisted member with a high school education 

(see Figure 5 on page 13). In contrast, the returns from a 

two-year associate’s degree in civilian employment begin 

at $9,000 a year and rise with experience.21

Enlisted and Civilian Compensation for People

with Different Levels of Education

Although education is not well rewarded in the enlisted 

force, members with postsecondary education may still 

see a financial advantage to remaining in the military. DeEnlisted Personnel with

CBO’s Analysis

3-6 Years

of Service

7-11 Years

of Service

12-17 Years

of Service

Number of Personnel in Sample 890 470 525

Base Retention Rate of Personnel in Sample (Percent) 45 73 93

Number with High School Education 321 111 84

Percentage-Point Difference in Retention Rate for Personnel 

with Postsecondary Education

Some college +1 -10* 0

Number in sample (469) (269) (289)

Associate’s degree +14 -14 -3

Number in sample (65) (58) (92)

Bachelor’s degree or higher -14 -12 +12

Number in sample (35) (32) (60)

If “some college” is acquired while in the service +7 +7 +1

Number in sample (217) (157) (184)

If associate’s degree is acquired while in the service -25** -10 +3

Number in sample (29) (41) (80)

If bachelor’s degree is acquired while in the service +11 -35* +99a

Number in sample (10) (12) (46)

21. That figure is based on data from the Bureau of Labor Statistics’ 

Current Population Survey. It represents the difference between 

the average earnings of men ages 18 to 59 years (with various levels of experience) with an associate’s degree and the average earnings of those with only a high school education.
EDUCATIONAL ATTAINMENT AND COMPENSATION OF ENLISTED PERSONNEL 11

pending on how many years of service the member has, 

higher education may mean only that the financial advantage of military service over civilian employment is 

smaller than it otherwise would be.

Costs from the Perspective of Employers. One way to 

compare military and civilian compensation is to look at 

how much the total package of compensation costs an 

employer. That cost captures retirement and medical benefits as well as salaries and wages.22

Box 3.

The Role of Postsecondary Education in the Promotion Process

for Enlisted Personnel

The policies and practices that determine the effect 

of education on promotion vary among the services. 

In general, additional education beyond the high 

school level is not a requirement for promotion to 

any of the enlisted ranks. However, higher education 

does play a role—sometimes subjectively and sometimes as part of a quantitative point system. But its 

weight is small relative to the total value of all of the 

factors considered in a promotion.

The process for senior enlisted personnel typically 

involves convening a promotion board, which evaluates eligible personnel according to a number of criteria—most significantly, job performance. The 

board usually considers education in a subjective 

manner. For ranks E-6 to E-9, Marine Corps boards 

consider education as part of the “whole Marine” 

concept. Although job performance is the most 

highly regarded element in a Marine’s promotability, 

higher education can enhance a person’s chances of 

promotion, provided that he or she is competitive 

with other candidates. Similarly, Army promotion 

boards for ranks E-7 to E-9 often view higher education as a desirable qualification. The situation is similar in the Air Force. For their part, Navy officials say 

that job performance and other objective criteria are 

typically enough to distinguish between candidates 

for promotion, so education seldom comes into play.

For midlevel enlisted personnel, the services usually 

employ point-based systems, which assign a fixed 

number of points to the factors under consideration. 

In those systems, higher education is explicitly considered along with more traditional factors such as 

job performance and test scores on military subjects. 

But there too, education receives a lesser weight than 

job-related factors. For example, Marines eligible for 

promotion to grades E-4 and E-5 receive 10 points 

for each college course (of three credit hours) and 15 

points for each course taken at the Marine Corps Institute, up to a maximum of 100 points. That maximum represents about 6 percent of the total 1,500 to 

1,700 points typically needed for promotion. The 

Army, in deciding on promotions to grades E-5 and 

E-6, awards 1.5 points for each college credit hour 

earned and another 10 points for degree completion. 

Those education points can add up to 100 points 

out of a total possible 800 points needed for promotion. The Navy does not award direct points for 

higher education in the promotion process for its 

midgrade enlisted personnel (E-4 to E-6). However, 

higher education is recorded in evaluation reports 

and may be accorded some value when the candidate 

is assessed in areas such as professional knowledge 

and personal initiative. 

The promotion process for junior enlisted personnel 

(up to E-3 for most services) is more automatic, with 

the essential requirements being length of time in the 

service and in the current pay grade. Promotion 

boards or point systems are not used for those grades.

22. Total employee compensation costs for both DoD and private 

employers include other benefits such as dependent education, 

child care, food, and recreation subsidies. This comparison excludes such benefits, which are difficult to estimate and which 

account for a small share of the total cost of benefits. 
12 EDUCATIONAL ATTAINMENT AND COMPENSATION OF ENLISTED PERSONNEL

Figure 4.

Percentage of Enlisted Personnel Who 

Are “Fast Trackers,” by Highest Level 

of Education Attained

(Percent)

Source: Congressional Budget Office.

Note: Personnel are “fast trackers” if they have fewer years of service than 90 percent of the service members in their pay 

grade (in other words, they are in the 10th percentile in 

terms of years of service).

In the private sector, a large employer contributes, on average, 6 percent of an employee’s salary to a retirement 

plan and about $2,500 per single worker or $6,000 per 

family annually to the cost of medical insurance.23 Although the total cost of noncash benefits is more difficult 

to evaluate, the Bureau of Labor Statistics estimates that 

such benefits account for roughly 31 percent of the cost 

of compensation for large private employers.24

In the case of military personnel, noncash benefits (including those paid by the Department of Veterans Affairs) account for almost 60 percent of the total cost of 

military compensation to the federal government.25 As 

part of those noncash benefits, DoD contributes 27 percent of basic pay to cover the cost of accruing retirement 

benefits for active-duty personnel, pays an average of 

$10,000 per active-duty service member for the medical 

costs incurred by such members and their families, and 

provides retiree medical benefits that, if fully funded on 

an accrual basis, would cost an additional $8,400 per 

active-duty service member each year. Military retirement 

benefits are not vested before 20 years of service, which 

means that a minority (less than 20 percent) of enlisted 

personnel in each cohort of recruits ever receive retiree 

benefits. That situation makes the allocation of those 

benefits among active-duty personnel at different years of 

service arbitrary. Nonetheless, because the accrual charges 

paid on behalf of personnel who do not retire are needed 

to cover the benefits of those who do, those charges are 

part of the average cost of military personnel from DoD’s 

perspective.

Factoring in the accrual costs of medical and pension 

benefits for retirees, the federal government pays more for 

an enlisted service member than a private employer pays 

for a worker with an associate’s degree and earnings in the 

70th percentile for such workers (see the top panel of Figure 6 on page 14).26 Indeed, the cost of the typical enlisted member is roughly equivalent to the cost of the 

median civilian with at least a bachelor’s degree. The difference in total employment costs for enlisted personnel 

and private-sector workers of similar education levels, 

taking into account retirement and medical costs, is significantly greater than the difference in salaries and wages 

(see the bottom panel of Figure 6).

23. Department of Labor, Bureau of Labor Statistics, Employer Costs 

for Employee Compensation, (June 2003); and Kaiser Family Foundation and Health Research and Educational Trust, 2002 Employer Health Benefits Survey (Menlo Park, Calif.: Kaiser Family 

Foundation, 2002).

 High

School

 Some

College

Associate's

 Degree

 Bachelor's

 Degree

 or Higher

0

5

10

15

20

25

30

24. Department of Labor, Employer Costs for Employee Compensation.

That figure is for employers with 500 workers or more. The percentage for all employers is 28 percent. The benefits in that calculation include legally mandated benefits, such as employers’ 

contributions to Social Security, unemployment insurance, and 

workers’ compensation. They also include paid leave (vacation, 

holiday, sick, and other leave).

25. See Congressional Budget Office, Military Compensation: Balancing Cash and Noncash Benefits. The calculation for military noncash benefits includes legally mandated benefits but excludes paid 

leave.

26. For the comparisons in this paper, CBO calculated the cost of 

enlisted personnel using the career path of the “typical” enlisted 

member, based on historical data. That typical member attains the 

rank of E-3 by the second year of service, E-4 at the fourth year, 

E-5 at the eighth year, E-6 at the 14th year, and E-7 at the 20th 

year. (The vast majority of enlisted personnel retire at the rank of 

E-7, although a select few reach E-8 and even fewer reach E-9.)
EDUCATIONAL ATTAINMENT AND COMPENSATION OF ENLISTED PERSONNEL 13

Figure 5.

Average Earnings of Enlisted Personnel, by Highest Level of Education Attained and Years of Service

(Thousands of 2003 Dollars)

Source: Congressional Budget Office.

Note: Earnings denote regular military compensation, which is the sum of basic pay, allowances for housing and subsistence, and the federal 

tax advantage that accrues because those allowances are not taxed.

Compensation from the Perspective of the Enlisted Service Member. The fact that the cost of an enlisted service 

member to DoD is greater than the cost of a worker with 

an associate’s degree (and 70th percentile earnings) to a 

private employer does not necessarily mean that military 

service is more attractive than civilian employment. Depending on an individual’s preferences, military pay may 

need to be higher to compensate for the hazards and 

hardships of military service. In addition, although military personnel value in-kind and deferred benefits, in 

many cases that value is less than what DoD pays to provide the benefits.27

Although the nonpecuniary aspects of military service are 

hard to quantify, analysts have developed techniques to 

compare the financial advantage of military service (including the value of deferred retirement pay) over civilian 

employment for service members with different levels of 

education and at different points in their careers. Since 

the 1970s, the models most widely used to predict retention among enlisted personnel—and to characterize the 

relative financial benefits of military and civilian employment—have taken into account the lifetime annuity that 

military service provides to relatively young retirees. 

Recognizing that each additional year of service entails 

nonpecuniary benefits or costs, those models compare 

military service and civilian employment not only by 

looking at the difference in the present discounted value 

of future earnings (discounted at a high individual rate) 

but also by looking at that difference spread out, or annualized, over the years of service required to obtain them. 

(For a description of that approach, see Box 4 on page 

15.)28 Such models predict the retention behavior of career personnel much better than do models that focus 

<1 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29

0

20

30

40

50

60

70

80

90

High School

Some College

Associate's Degree

Bachelor's Degree or Higher

Years of Service

27. For example, a service member living off-base may have no preference between shopping at an on-base commissary or at a commercial supermarket. Nevertheless, if the member does shop at the 

commissary, DoD incurs a subsidy cost.

28. Also see Matthew S. Goldberg, A Survey of Enlisted Retention: 

Models and Findings, CRM D0004085 (Alexandria, Va.: Center 

For Naval Analyses, November 2001) for a discussion of such 

models.
14 EDUCATIONAL ATTAINMENT AND COMPENSATION OF ENLISTED PERSONNEL

Figure 6.

The Cost of Enlisted Personnel to DoD Compared with the Cost of Civilian

Workers to Private Employers

(Thousands of 2003 Dollars)

Source: Congressional Budget Office based on data from the Department of Defense, the Department of Labor's Bureau of Labor Statistics, 

and the Kaiser Family Foundation.

Note: The employment cost for an enlisted service member includes regular military compensation (assuming someone at the median pay 

grade for each year of experience), the cost of medical benefits while the member is on active duty, and the accrual cost of retirement 

pay and medical benefits (including medical benefits that retired service members receive while under and over 65 years of age). The 

employment cost of a civilian worker includes the employer’s contributions to a retirement plan and medical insurance. The civilian 

costs shown here are for workers earning at the 70th percentile for each level of education (in other words, their earnings exceed 

those of seven out of 10 workers with the same level of education and years of experience).

Years of Experience

Civilian with High School Education

Civilian with Bachelor's

Degree or Higher

Enlisted Personnel

Civilian with Associate's Degree

Civilian with Some College Education

5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26

0

10

20

30

40

50

60

70

80

90

100

Civilian with Some

College Education

Civilian with High School Education

Civilian with Associate's Degree Enlisted Personnel

Annual Employment Cost

5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26

-5

0

5

10

15

20

25

30

Difference in Employment Cost Between Enlisted Personnel

and a Civilian with Some College Education

Years of Experience

Including Retirement Pay

and Medical Benefits

Salary Only

(With age component)
EDUCATIONAL ATTAINMENT AND COMPENSATION OF ENLISTED PERSONNEL 15

only on differences in annual salaries—an indication that 

they better characterize the financial comparisons that 

service members make.

Viewed from that career perspective, the financial benefit 

of continued military service rises (or the financial disadvantage declines) as the number of years of service approaches 20 (see Figure 7). During an enlistee’s first term 

of service, differences in annual civilian and military salaries are very important, and retirement benefits—which 

have a low present discounted value and would require

many years of service to earn—are much less important. 

By the ninth year of service, however, the present discounted value of retirement benefits, annualized over the 

(now fewer) years of service required to earn them, makes 

military service appear financially attractive even to people who, in the civilian sector, could earn at the 70th percentile of civilians with associate’s degrees. By the 17th 

year of service, even an individual with a bachelor’s degree who could earn at the 70th percentile in the civilian 

sector for that level of education would find continued 

military service financially attractive.

Box 4.

The Annualized-Cost-of-Leaving Approach 

to Comparing Military and Civilian Pay

Comparisons of military and civilian earnings are 

complicated by the fact that so much of military 

compensation takes the form of future retirement 

benefits. Since the 1970s, military manpower analysts have use so-called annualized-cost-of-leaving 

(ACOL) models to address that problem.1

ACOL models calculate the present discounted value 

(PDV) of a service member’s earnings over his or her 

lifetime for all possible future lengths of service, minus the PDV of the lifetime earnings that the member forgoes by not leaving the military immediately 

and taking civilian employment. That calculation 

yields a net PDV for serving one additional year and 

then leaving instead of leaving immediately, another 

net PDV for serving two additional years and then 

leaving instead of leaving immediately, and so on. 

Each of those net PDVs is then spread out—annualized—over the number of years of military service associated with it, which converts it into a constant 

stream of military pay. 

The annual amount of each stream is, in effect, the 

annualized pay differential between military and civilian employment for the associated service horizon. 

A service member seeking to maximize his or her 

well-being will remain in the military as long as there 

is any future length of service that offers an annualized pay differential greater than his or her annual 

distaste for military service. Otherwise, the member 

will leave immediately. In such models, retention decisions for an individual at, say, 12 years of service 

are driven not by whether the difference between 

military and civilian pay in that year outweighs the 

individual’s distaste for military service but by 

whether the maximum of the annualized pay differentials looking over all possible lengths of future service (the ACOL value) exceeds the member’s distaste 

for military service. 

Because both military and civilian retirement benefits enter into the PDV of lifetime earnings, this approach offers a way to compare military and civilian 

wages that takes retirement benefits into account. 

The annualized pay advantage of military over civilian employment—and thus the ACOL value—rises 

rapidly for people approaching 20 years of service 

because the value of military retirement is annualized 

only over the years left to serve to earn it (see Figure 

7). After 20 years of service, however, the retirement 

pay a member forgoes by remaining on active duty 

makes future military service look financially unattractive relative to civilian employment, and the annualized military pay advantage (the ACOL value) 

1. See John H. Enns, Gary R. Nelson, and John Warner, “Retention and Retirement: The Case of the U.S. Military,” 

Policy Sciences, vol. 17 (1984).
16 EDUCATIONAL ATTAINMENT AND COMPENSATION OF ENLISTED PERSONNEL

Figure 7.

Annualized Pay Advantage of Military Service Over Civilian Employment for 

Enlisted Personnel, by Highest Level of Education Attained and Years of Service

(Thousands of 2003 Dollars)

Source: Congressional Budget Office.

Note: The annualized pay advantage is the present discounted value of the lifetime earnings advantage of continued military service over 

civilian employment expressed in terms of an annual salary differential. The pay advantage for each education level and year of service is calculated using pay for an enlisted member at the median grade for each year of service compared with pay for a civilian 

worker earning at the 70th percentile of civilian workers.

Two factors explain why DoD can maintain high retention among midcareer personnel even though (as noted 

in the Ninth Quadrennial Review of Military Compensation) their salary profile by years of experience looks relatively flat compared with that of civilian workers who 

have similar education. One is that people with a strong 

preference for military service are those most likely to still 

be in the military at the midcareer point. The other is 

that the current retirement system ensures that the financial incentive to stay increases with years of service, regardless of education.

The Uncertain Policy Implications

of Rising Educational Attainment

for Enlisted Compensation

DoD officials view the increasing education level of the 

enlisted force (and of young people as a whole) as a cause 

for concern about the adequacy of compensation for 

midcareer enlisted personnel, prompting them to target 

pay raises to those personnel. They also argue that pay 

raises targeted to midcareer and senior enlisted personnel 

will increase retention among those junior enlisted members who may consider remaining in the military. However, the analysis in this paper suggests that concern 

about the adequacy of compensation may be misplaced. 

There is no evidence that DoD is failing to meet its quality objectives; indeed, in the view of many senior military 

leaders, the quality of the current enlisted force is unsurpassed. Overall, retention in the enlisted force remains at 

or above historical levels (see Figure 8). In addition, the 

fact that the share of the force with higher education is 

continuing to rise at each year of service and pay grade 

does not suggest a decline in the competitiveness of military compensation.

An alternative interpretation of current trends is that rising in-kind and cash benefits for service members have 

made a military career financially attractive not only to 

people with high school degrees but also to many individuals with some college education. If that interpretation is 

5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26

-50

0

50

100

150

200

High School

Some College

Associate's Degree

Bachelor's Degree or Higher

Years of Service
EDUCATIONAL ATTAINMENT AND COMPENSATION OF ENLISTED PERSONNEL 17

correct, raising the benchmark for RMC to the salary 

paid to the 70th percentile of civilian wage earners with 

some college education could produce further increases in 

the average educational attainment of the enlisted force—

and, potentially, demand for a still higher benchmark. 

Other ways of enhancing the quality of the enlisted force, 

by focusing on the best-performing personnel, might be 

more cost-effective.

Could Educational Trends and Quality 

Be an Issue in the Future?

Little, if any, evidence exists of quality problems in the 

current enlisted force that could justify targeting pay 

raises to midlevel and senior enlisted personnel. Nonetheless, DoD could face such problems in the future 

if repeated and prolonged deployments increased the 

hardships of a military career and if the returns from education in the civilian sector kept growing. With an allvolunteer force, DoD’s continued ability to recruit and 

retain high-quality personnel depends largely on the 

changing civilian economy and cannot be taken for 

granted.

Military transformation could also increase the value of a 

more highly educated enlisted force to DoD. Just as a 

four-year college degree has come to be required for officFigure 8.

Continuation Rates for Active-Duty Enlisted Personnel, by Years of Service

(Percent)

Source: Congressional Budget Office.

Note: The retention rate for 2002 is most likely buoyed by the

stop-loss orders (the temporary stoppage of exits from

active duty) invoked for the war on terrorism.

ers, the formal-education requirements for enlisted personnel could rise in the future if new technologies andoperational doctrines increased the autonomous capabilities 

and responsibilities of individual soldiers. In a transformed force, DoD might need to consider policies that 

would further raise the quality and—at least incidentally—the formal-education qualifications of enlisted personnel.

Alternative Policies to Enhance the Quality 

of the Enlisted Force in the Future 

If the quality of the enlisted force does become a concern 

in the future, further targeted pay raises for all midcareer 

and senior enlisted personnel could prove less cost-effective than policies that focused specifically on the bestperforming personnel. Examples of such policies include 

speeding up promotion for the best performers, increasing the rewards for promotion as opposed to longevity, 

and providing alternative career tracks for people who 

obtain postsecondary education early in their military 

career.

Continue Targeted Pay Raises for Midcareer Personnel. 

A higher salary benchmark that targets raises to midcareer 

personnel may increase the quality of the force by boosting retention rates and allowing the services to be more 

selective in whom they keep. Nonetheless, targeting raises 

to all midcareer and senior enlisted personnel is likely to 

be an expensive approach to improving the quality of the 

force, for several reasons.

First, the effect of pay on retention declines with years of 

service.29 That occurs partly because of selection—since 

personnel who remain have a greater preference for military service and are less responsive to changes in military 

pay relative to civilian pay—and partly because as years of 

service increase, the pull of the retirement system becomes greater, reducing responsiveness to current pay (see 

Figure 7).

1990 1992 1994 1996 1998 2000 2002

0

60

70

80

90

100

3-6 Years

7-11 Years

12-17 Years

29. For example, for service members in the mechanical maintenance 

occupational group, a 10 percent increase in pay is associated with 

an 18 percent increase in retention in the first term of service but 

with only an 11 percent rise in retention in the second term; see 

D. Alton Smith, Stephen D. Sylwester, and Christine M. Villa, 

“Army Recruitment Models,” in Curtis L. Gilroy, David K. 

Horne, and D. Alton Smith, eds., Military Compensation and Personnel Retention: Models and Evidence (U.S. Army Research Institute for the Behavioral and Social Sciences, 1991).
18 EDUCATIONAL ATTAINMENT AND COMPENSATION OF ENLISTED PERSONNEL

Second, even if higher salary benchmarks increase retention, they may not enhance the quality of the force. Under the current retirement system (in which members are 

not vested in retirement benefits before 20 years of service), the military is reluctant to involuntarily separate 

midcareer personnel. As a result, any increase in retention 

among those service members because of targeted pay 

raises may lead to a force that is generally more senior but 

not necessarily of higher quality. And if overall higher retention slows promotions, it may have a negative effect 

on quality.

Third, targeted pay raises have important implications for 

military retirement costs. To avoid inversions in the pay 

scale, raises for midcareer personnel (grades E-5 through 

E-7) are typically accompanied by raises for more-senior 

personnel (grades E-8 and E-9). Because relatively few 

people are in grades E-8 and E-9, DoD argues that their 

pay raises are inexpensive. However, those raises increase 

the base on which retirement pay is calculated. Although 

DoD would not feel the higher retirement costs immediately, over the long run, a 10 percent targeted increase in 

pay for senior enlisted personnel could raise DoD’s accrual charges by about 10 percent (or about $660 million 

annually). In addition, much of the cost of higher retirement pay for people currently in the force would be paid 

by the Treasury rather than by DoD. Data from DoD’s 

Office of the Actuary suggest that the targeted pay raises 

for enlisted personnel given from 2000 to 2002 added 

about $5 billion to the unfunded liability of the retirement system. (The addition resulting from the 2003 and 

2004 raises has not yet been determined.) 

Some supporters of targeted raises counter that even if 

making the salaries of midcareer military personnel comparable to those of civilians with some postsecondary education is not a cost-effective way to improve the quality 

of the force, it is desirable as a matter of fairness. Because 

only about 20 percent of the recruits in each entering cohort complete a full career and become eligible for retirement benefits, a benchmark based on current salaries may 

be more equitable than one that takes retirement into account. Excluding retirement benefits, the compensation 

of midcareer enlisted personnel is less than the 70th percentile of earnings for civilians with some college education. Given the high quality of the enlisted force, some 

people—including service members—might consider 

that level unfairly low. If that argument is valid, however, 

the most cost-effective solution may be to make the retirement system more equitable (for example, by allowing 

earlier vesting) rather than to try to produce parity between military and civilian salaries without regard to retirement benefits.

Expand the Role of Promotion. The military rewards superior performance and quality in the enlisted force 

through promotion and through the pay, status, and 

opportunities that accompany higher rank. DoD could 

expand the rewards for performance within the current 

system by increasing the weight that the pay table gives to 

promotions (as opposed to total length of service) or by 

increasing the relative speed at which the best personnel 

are promoted. 

Two examples of those approaches are described below. 

Both would maintain the current system’s emphasis on 

performance and quality rather than on education per se. 

As a result, they would raise the financial rewards for education only to the extent that education is correlated with 

quality and performance in enlisted jobs.

Increase Variability in Promotion Speed and Career Paths. 

Varying the speed of promotion is one way to reward performance and encourage the most qualified people to remain in the military. In the private sector, the difference 

in pay between high school graduates and people with 

some college education is growing. If, in the future, DoD 

wants to make a full enlisted career more attractive to 

high-quality personnel who obtain higher education early 

in their career, it may have to either raise pay for the enlisted force as a whole to unprecedented levels or provide 

a much faster promotion track for part of that force.

Creating a more rapid promotion track could entail making two changes. First, increasing the percentage of the 

force in grades E-8 and E-9 would mean that people who 

reached E-7 early in their career would still see opportunities for promotion and have an incentive to continue to 

excel. Second, adding an E-10 pay grade would ensure 

that members who were promoted early to E-9 still had 

an incentive for performance. 

That approach could have several drawbacks, however. 

Increasing the range of years of service at each pay grade 

could conflict with the culture of the active-duty services, 

in which promotions are closely tied to years of service. In 

addition, an increase in the supply of more-educated personnel does not necessarily mean that the military’s need 

for such personnel also increases. Moreover, if differences 

in the civilian earnings potential of personnel with and 

without postsecondary education continued to rise, it 
EDUCATIONAL ATTAINMENT AND COMPENSATION OF ENLISTED PERSONNEL 19

could become increasingly difficult to fit the two groups 

within a single enlisted pay table and rank structure.

Reward Promotion as Opposed to Longevity. Besides raising 

the benchmark for enlisted personnel, DoD has modified 

the pay table for midcareer and senior personnel to increase the returns from promotion relative to those from 

longevity. For example, in the 1998 pay table, increases in 

longevity accounted for 32 percent of the growth in pay 

for a typical enlisted member between the 10th and 20th 

years of service, whereas promotions (to E-6 and then 

E-7) accounted for 68 percent. In 2003, by comparison, 

promotions accounted for 77 percent of the growth in 

pay over those years of service. DoD hopes that change 

will improve performance as service members compete 

more vigorously for promotion. 

Another way to reduce the importance of longevity and 

reward the best performers would be to shift from the 

current system, in which pay depends on grade and total 

years of service, to one in which pay depended on grade 

and years of service within that grade. The present system 

pays the most to personnel who, for their rank, have the 

greatest total years of service—that is, those who were 

promoted the most slowly over their career. In contrast, a 

system based on time in grade would, in principle, pay 

the most to people with a given rank and years of total 

service who achieved that rank the most quickly. Seniority would still be rewarded with higher pay, but it would 

be defined in terms of years in pay grade rather than total 

years of service.

The benefits of a pay table based on time in grade, however, depend on variation in the speed of promotion. In a 

system in which everyone tended to be promoted to each 

rank at about the same point in their career, there might 

be little difference between a table based on years of service and one based on time in grade. Another difficulty is 

that if a table based on time in grade is to increase the pay 

of service members who are promoted rapidly, it must either provide offsetting reductions in pay for other personnel or increase total military compensation.30

Provide Alternative Career Paths for Personnel Who 

Obtain Higher Education Early in Their Career. Another 

option to reward education and offer better military careers would be to allow more enlisted personnel to move 

into the ranks of either warrant officers or commissioned 

officers. If the returns from education in the private sector continue to rise, it may become increasingly difficult 

to make the standard enlisted career track attractive to 

people with education without at the same time paying 

high wages (relative to similarly educated civilians) to 

people without those qualifications. As long as the enlisted force has enough personnel with college degrees in 

leadership positions that may require them, it may not be 

cost-effective to have high-quality personnel with degrees 

in occupations that do not require them.

In the civilian sector, workers move on to other positions 

as they acquire higher education. In the military, the lack 

of lateral entry into the officer corps—where there are 

jobs that require higher education—makes that pattern 

difficult to emulate. Although all of the services have programs to commission enlisted personnel as officers, they 

are attractive only to relatively young service members because they start at the junior-officer level. Expanding the 

flow of enlisted personnel to the warrant-officer and 

commissioned-officer levels might provide a way to accommodate increasing levels of education.

30. One way around that problem might be to introduce the new pay 

table gradually, taking advantage of the fact that military pay, like 

civilian wages, grows faster than the rate of inflation. Service 

members could stay under the current pay table, adjusted each 

year for inflation, until they chose to switch to a table based on 

time in grade. Pay raises greater than inflation would be used to 

gradually make the time-in-grade table attractive to a larger percentage of the force.

Details of CBO’s Analysis of Retention

The Defense Manpower Data Center (DMDC) created a data set for the Congressional Budget Office’s 

(CBO’s) retention analysis by merging information from 

three sources: 

B Records from the 1999 Survey of Active Duty Personnel, which provides more up-to-date information 

about education than administrative records do.1

B Selected data from the Active Duty Personnel Master 

Edit File for September 1999 through June 2002, covering service members’ rank, age, years of service, military department, race, sex, and other details. 

B Information from the Active Duty Personnel Transaction File for May 1999 through June 2002, showing 

members’ exits from military service (losses).

A sample of about 15,000 enlisted personnel (excluding 

Coast Guard members) was extracted from the data set 

and formed the basis of this analysis. In the sample, about 

37 percent of personnel were in the Army, 24 percent in 

the Navy, 25 percent in the Air Force, and 14 percent in 

the Marine Corps (see Table A-1). About 83 percent 

were male and 62 percent were white. The average age of 

respondents at the time of the survey was 30, and the average length of service was nearly 10 years. CBO applied 

weights developed by DMDC to “correct” the survey responses to reflect the enlisted population as a whole, adTable A-1.

Selected Characteristics of the Sample

Source: Congressional Budget Office.

APPENDIX

1. The survey covered all active-duty Army, Navy, Air Force, Marine 

Corps, and Coast Guard members (including reservists on active 

duty) below the rank of general or admiral who had had at least 

six months of active-duty service at the time the surveys were 

mailed. For additional details about the survey, see Defense Manpower Data Center, 1999 Survey of Active Duty Personnel: Administration, Datasets, and Codebook, Report No. 2000-005 (December 2000), Overview of the 1999 Survey of Active Duty Personnel, 

Report No. 2000-008 (February 2001), and 1999 Survey of Active 

Duty Personnel: Statistical Methodology Report, Report No. 2000-

010 (September 2000).

Variable

Sample

Average

Service Affiliation (Percent)

Army 37

Navy 24

Air Force 25

Marine Corps 14

Demographic Characteristics (Percent)

Male 83

White 62

Black 18

Hispanic 11

Other race 7

Multiracial 3

Average age at survey date (Years) 30

Career Information

Average years of service at survey date 9.6

Average rank at survey date E-5

Occupation (Percent)

Electrical 20

Functional support 17

Infantry 14

Communications 10

Electronic 10

Supply 8

Health 7

Craft 3

Other technical 3

Nonoccupational 1

Other 7
22 EDUCATIONAL ATTAINMENT AND COMPENSATION OF ENLISTED PERSONNEL

justing for differences in sampling and response rates. 

The percentages and other averages shown in Table A-1 

and throughout this paper reflect those weighted responses.

The statistical analysis, centering on the relationship between education and retention, was conducted for enlisted personnel who were nearing a reenlistment decision 

point. Those personnel were tracked for about 24 months 

after their decision point to determine whether they had 

remained in the military. CBO used logit equations to 

analyze the relationship between various factors and that 

retention behavior. Specifically, the analysis sought to determine, holding other things constant, whether enlisted 

members with postsecondary education are more or less 

likely to leave the military than otherwise similar members with only a high school education. The analysis 

controlled for the effects of a wide range of personal characteristics and job-related factors. In addition, it was designed to determine whether, for service members who 

had attained a given level of postsecondary education, 

acquiring that education while on active duty instead of 

before entering military service made any difference for 

retention. Thus, the following factors were variables in 

the equations:

B Personal characteristics

– whether married

– whether married with children

– whether male

– whether white

– age

B Job-related variables

– service (Army or Air Force)2

– years of service (measured at survey date)

– whether in a technical occupation with civilian 

equivalents (such as electronics)

– whether in a nontechnical occupation with civilian 

equivalents (such as supply)

– whether in an exceptionally high rank or an average rank, given years of service (an indicator of either relatively fast or average speed of promotion, 

compared with below-average promotion pace)

B Education variables at time of survey

– high school

– some college (one or more semesters but no degree), and whether it was acquired while in the service

– associate’s degree, and whether it was acquired 

while in the service

– bachelor’s degree or higher, and whether it was acquired while in the service

With the exception of age and years of service, those variables are “categorical,” with a value of 1 if true and 0 otherwise. The dependent variable—whether the enlisted 

member stays in the military—also takes on a value of 1 if 

true and 0 otherwise. The coefficients and significance 

level of each of the variables in the estimated logit equations are shown in Table A-2. A negative sign on a coefficient indicates an effect that decreases the probability of 

retention, and a positive sign indicates the opposite effect. The actual changes in the probability of staying in 

the military (as presented in Table 1 on page 10) are calculated from those coefficients.

2. The Department of the Navy was the omitted service variable in 

the equation.
DETAILS OF CBO’S ANALYSIS OF RETENTION 23

Table A-2.

Results of Estimated Logit Equations for Retention of Enlisted Personnel

Source: Congressional Budget Office.

Notes: The dependent variable is whether the service member stayed in the military. High school education is the omitted education variable 

in the equations. The probabilities reported in Table 1 on page 10 are based on the coefficients in this table.

The significance level is the probability that the coefficient is 0. A low significance level (0.05 or lower, for example) indicates that it is 

unlikely that the coefficient is 0 and that the variable more than likely has an effect on retention.

a. Statistically significant at the 90 percent level.

b. Statistically significant at the 95 percent level.

c. Statistically significant at the 99 percent level.

3-6 Years

of Service

7-11 Years

of Service

12-17 Years

of Service

Coefficient

Significance 

Level Coefficient

Significance 

Level Coefficient

Significance 

Level

Mean of Dependent Variable 0.45 0.73 0.93

Intercept -2.315 0.003c -2.561 0.038b -3.534 0.152

Married 0.003 0.990 0.235 0.510 -1.206 0.091a

Married with Children 0.510 0.014b -0.212 0.510 0.446 0.382

Male 0.021 0.908 0.302 0.346 0.103 0.864

White -0.722 0.0001c -0.538 0.030b -0.656 0.123

Age 0.040 0.172 0.084 0.060a 0.001 0.984

Army -0.089 0.616 -0.415 0.110 0.068 0.888

Air Force 0.882 0.0001c 1.018 0.004c 1.274 0.089a

Years of Service at Survey Date 0.290 0.0005c 0.167 0.088a 0.462 0.001c

Technical Occupation

with Civilian Equivalent -0.043 0.810 -0.252 0.374 0.497 0.231

Nontechnical Occupation

with Civilian Equivalent 0.266 0.186 0.646 0.064a 0.778 0.189

Fast Mover 0.340 0.474 0.394 0.481 0.246 0.803

Regular Mover 0.078 0.839 -0.006 0.988 -0.236 0.689

Some College 0.037 0.845 -0.569 0.096a 0.116 0.840

Associate’s Degree 0.571 0.158 -0.647 0.316 -0.617 0.606

Bachelor’s Degree or Higher -0.578 0.252 -0.562 0.399 10.927 0.962

Whether “Some College”

Is Acquired While in the

Service 0.268 0.195 0.418 0.182 0.412 0.445

Whether Associate’s

Degree Is Acquired

While in the Service -1.179 0.036b -0.483 0.481 1.085 0.386

Whether Bachelor’s Degree

or Higher Is Acquired

While in the Service 0.458 0.581 -1.537 0.081a -11.382 0.960