EDUCATIONAL BENEFITS AND MILITARY SERVICE: AN ANALYSIS OF ENLISTMENT, REENLISTMENT, AND VETERANS' BENEFIT USAGE 1991–2005

I. INTRODUCTION Educational benefits for military veterans have become a prime recruiting tool in the All-Volunteer military force (AVF). The primary education benefit for most of the AVF era has been the Montgomery GI Bill (MGIB). This version of the GI Bill began in July 1985 and bears the name of its sponsor, Alabama representative Sonny Montgomery. Under this program, eligible veterans who enroll in an education program approved by the Veterans Administration are eligible to receive up to 36 mo of benefits if they begin usage within 10 yr of separating from service. Veterans are only eligible for MGIB benefits if they contribute $100 per month during their first year of service. (1) From time to time, three of the four military branches have supplemented the basic MGIB benefit with College Fund (CF) benefits. Research has indicated that educational benefits do in fact attract enlistments of "high-quality" youth, defined by the military services to be youth who possess a high school degree and who score above the youth population average of 50 on the Armed Forces Qualification Test (AFQT). (2) Although educational benefits attract more highly qualified youth into the military, those benefits may be costly for at least two reasons. First, such youth may be more likely to separate from the military to use their benefits, thus requiring higher rates of recruitment of new enlistees to maintain the size and quality of the force. Second, higher benefits may increase the tendency of youth who separate from the military to use those benefits as well as increase the duration of usage. Of course, this would not be surprising; a growing body of research finds that college tuition subsidies raise college attendance. Interest in the potential behavioral effects of military educational benefits was recently heightened by a vigorous debate in Congress over veterans' benefits. This debate culminated in the Post-9/11 Veterans Education Assistance Act of 2008, which was passed in July 2008, becoming effective on August 1, 2009. The act provides future veterans with substantially higher educational benefits than those available through the MGIB. This paper analyzes how GI Bill benefits affect military retention and veterans' benefit usage. The analysis is useful for two reasons. First, as our review of the literature below indicates, existing studies of the retention and usage effects of military education benefits are now quite dated. Second, prior studies have all ignored issues relating to selection; as a result the estimates of retention and usage effects found in them cannot be cleanly interpreted as pure incentive effects arising from benefit changes. Our analysis accounts for the possibility that higher veterans' education benefits may attract youth who are more likely to separate and use those benefits, conditional on their observables. Over the period of our analysis, the nominal value of GI Bill benefits were set legislatively and changed unpredictably. We use the unpredictable evolution of the value of veterans' education benefits over our data period to disentangle selection effects and incentive effects of benefit changes on retention and benefit usage. Our analysis makes use of administrative data that span the period 1988-2005 and contains annual information on every individual who entered active military service from the time of entry to the time of separation or, if still in service, until the end of fiscal year (FY) 2004. As shown below, this was a period during which the real value of military educational benefits fluctuated considerably. For those who separated, details of educational benefit usage were available to us as of June 2005. If educational benefits do affect the retention behavior of military personnel or the educational decisions of military veterans, their effects should be apparent in data over this period. To highlight our key findings, we estimate that a $10,000 increase in MGIB benefits would increase the fraction of Army veterans who use them within 2 yr of separation by 5-8 percentage points. …