Armed Forces Educational Assistance Act of 1981

Armed Forces Educational Assistance Act of 1981 - Establishes an Armed Forces Educational Assistance Program for persons who enter military service after September 30, 1981, and serve on active duty for three years or more. Sets forth a schedule of educational assistance entitlement for such veterans as follows: (1) for service of 36 consecutive months but less than 48 consecutive months and an agreement to serve three years in the Ready Reserve, 18 months of assistance; (2) for service of 48 consecutive months but less than 72 consecutive months and an agreement to serve four years in the Ready Reserve, 36 months of assistance; and (3) for service of 72 consecutive months, 36 months of assistance.

Allows an eligible veteran who has served on active duty for 16 years by September 30, 1987, to transfer his or her educational entitlement to spouse or children in such manner as prescribed by the Administrator concerned and under limitations set forth in this Act.

Makes such veterans eligible for educational assistance for the six-year period following their discharge or release date. Sets forth procedures extending any applicable time period for such veterans who are prevented from initiating or completing a program of education under certain circumstances.

Directs the Administrator of Veterans' Affairs to pay tuition costs and a subsistence allowance to eligible veterans in the program.

Terminates the Post-Vietnam Era Veterans' Educational Assistance program after September 30, 1983.

Requires the Administrator of Veterans' Affairs and the Secretary of Defense to submit a joint report to the Congress, not later than 90 days after the enactment of this Act, on plans for implementing the educational assistance provided in such Act.

Directs the Secretary of Defense to report to the Congress semiannually on the effect of such program on the number and quality of individuals entering the Armed Forces.