The law used to state simply that, in order to qualify for educational assistance under section 3311(c)(4) of US Code Title 38, part III, Chapter 33, Subchapter II, a veteran simply needed "A discharge or release from active duty in the Armed Forces." However, in 2011, the Senate Armed Services Committee changed the eligibility to now require "A discharge or release from active duty in the Armed Forces after service on active duty in the Armed Forces characterized by the Secretary concerned as honorable service."
This was a conscious decision that was expected to restrict eligibility to approximately "2,900 veterans per year." The money that would be saved under this measure was to be dedicated to opening eligibility status to National Guard members. The money used to offset the cost of offering GI Bill benefits to Guard members averages about $25 million per year, as opposed to the total cost of increasing eligibility to Guard members of about $175 million per year over the next 10 years -- thus reducing the government's expense to an average of about $150 million per year.
Bottom line: It's true, as I understand it, that this change represents one of the primary reasons why discharged servicemembers seek to have their discharges upgraded, causing a surge in such requests. To reverse this policy, it would take legislation and $25 million more per year.