Your read on the mechanism is right. Entitlement follows the loan. Moving the deed subject-to doesn't restore any of it, doesn't release him from liability, and doesn't change his credit exposure. The 25% guaranty on that 312k stays charged against him until the loan is paid off or someone with entitlement formally assumes it and substitutes their own.
There are two different things people blur together here. VA loans are generally assumable with servicer and VA approval, and a non-veteran can be approved to assume one. That path can get him a release of liability, which fixes the credit and the DTI problem, but it doesn't restore entitlement because his guaranty is still standing behind the loan. Substitution of entitlement, the thing that actually frees up his 78k, requires the assumer to be an eligible veteran willing to put their own entitlement on the line. You're not, so that door is closed unless you bring in a veteran partner as the borrower, which creates a different set of problems around who controls the property.
A qualifying assumption also underwrites you. Credit, income, and the servicer's processing fee, plus a VA funding fee on assumptions that's a fraction of a percent of the balance. Amounts and eligibility rules change, so have him request the current assumption package and fee schedule from the servicer in writing rather than relying on what a loan officer said on the phone.
The part worth sorting out before you paper anything is what he actually needs. If he has remaining entitlement above what's tied up, he may be able to buy at his next station with a partial zero-down amount and a small down payment, which makes this a math problem instead of a dealbreaker. Get his certificate of eligibility and let his own lender run that number. A real estate attorney in the state should handle the disclosure language either way.
