long story short, cadets must apply for scholarships to attend grad school.
That being said (long story medium, now, cause it's late), it can be paid for my the Air Force. Most grad school attendees directly out of USAFA fall into one of 3 categories (excluding med school, since that's entirely different). The first group is those who receive National Scholarships, such as the Rhodes, Marshall, or Draper Fellowship. When cadets are approved to apply and get accepted, the sponsoring organization picks up the tab, so that is not USAF covered. The next group is the GSP (Graduate Studies Program). This scholarship is sponsored by USAFA and sends graduates to AFIT or civilian schools (in certain years if AFIT doesn't have the program, like English or political science. *Note* It varies by year. 2010 was not allowed to attend Civilian schools, i heard 2011 was.) The purpose of this "scholarship" is to build a pipeline of future instructors. They get their degree, head into the field, and come back to USAFA to teach somewhere down the road. The final grouping are those who go for their AFSC. Several jobs desire that their people have graduate degrees, so the Air Force pays some to get their Masters-in-Residence.
For most grad school slots, your AFSC is still held for you. So if you're going to be a pilot, you can still get a national scholarship or the GSP, get a graduate degree in-residence right away and still go to pilot training.
So those are the three main groups as I understand it, four if you count med school. I'm in group 2 (GSP to AFIT) for another 7 months. Hornet earned the RAND scholarship and is there for another 2 years. I'm one of the folks who head to pilot training after, so it was a great opportunity for me.
I know this was kind of off-topic for this thread, so if you have further questions about it, please start a new thread, or send me a PM. Now time to go to bed since I have class in the morning