This is actually covered under two sections of law Title 10 and Title 20 as well as the DoD Financial Management Regulation (FMR).
Title 10 states that you MUST perform 45 days of active duty for training. While you are on ADT you are an employee of the government. The other 10 1/2 months you are simply a student who receives a scholarship benefit in the form of a stipend. Stipend is not considered to be pay.
Next comes the argument that "I have taxes taken out so it's pay". No, as outlined in the FMR, you pay Federal tax, and sometimes State tax, but you do not pay Social Security Witholding thus making stipend a taxable scholarship benefit and not pay.
According to Title 20, stipend is now supposed to be part of the loan qualification because it is not pay for employment, but rather an HPSP entitlement. This actually was implemented in the 2003-2004 school year by the Department of Education. Title 20 United States Code (Subchapter IV, Higher Education Resources and Student Assistance) Chapter 28, Section 1087kk, prescribes the amount of need as: the cost of school attendance minus the family (includes student) contribution and estimated other financial assistance received. Section 1087ll prescribes the cost of attendance as tuition/fees, books, supplies, equipment, computer rental/purchase, transportation, room and board, and if applicable, expenses for child care. Section 1087mm and 1087nn includes the students income as part of the family contribution. Section 1087vv (j) (other financial assistance; tuition prepayment plans) indicates that estimated financial assistance received by the student shall include all scholarships, grants or other assistance at the time of determining need. The HPSP tuition payment is treated as a tuition prepayment plan under Section 1087vv (j)(2) and reduces the cost of attendance. The stipend falls under Sections 1087mm, 1087nn, and 1087vv (j) that prescribe other financial assistance shall include all scholarships, grants or other assistance.
Clear as muddy water, but this is the nuts and bolts of the system we live with.