Why does the military change their standards when recruiting becomes downscaled?

It is true, the enlistment "standards" for the Army will fluctuate based on the numbers needed. A way that is done is limited/closed test and education categories, and restricting waivers on medical and moral. When the mission is low, the Army targets HS diploma graduates with a 50+ AFQT, and limits the moral and medical waivers to meet the lower quantitative goal with a higher percentage of quality. When the mission is high based on an increase of end-strength, the caps are lowered or removed from test/education categories, and waivers. The goal is to meet the higher quantitative number, with a lower percentage of quality.

Others have mentioned Supply and Demand. I'll take on Need v. Want.

When an Organization "trims the fat" we switch mentalities of what we need to what we want.

There are different requirements. Using the USMC as an example. We MUST maintain our bare bone Regiments, Squadrons & MEUs at 85%. Absolute "minimum." The T/O has a hard minimum of what that is. The MOSs required for those have a standard (ASVAB), the USMC has a physical standard, and there is a legal standard. That's really all that is required.

When the NDAA "expands" allowing us to have more people (going from 172k to 210k as an example) we get a lot more people. More Admin, more comm, more waterdogs, more everything. We're able to shove people into roles more easily. It's a math game. Rather than being forced into positions (Need based selection), they are allowed to choose (Want based selection).

It's not that the standards are changing, it's that there are less options on the shelf (Sellers market v. buyers market).

When the needs for numbers go down, the standards aren't changed, just better enforced with fewer or no exceptions. Just like with any job market. If you could wouldn't you want to select the best candidates for the military? We are already selecting from the top 15% of eligible candidates based on education, physical and mental qualification, lack of criminal background or use of drugs, now they will select the best of that pool.