I have some questions about student loans from family members. They are more curiosities, since they do not affect me directly. I stumbled into them while trying to help someone with Excel questions. So please forgive the vagueness of my questions,
since I might not know all the relevant facts.

Suppose a grandparent sets up a 9-year student loan at the current mid-term AFR. The terms of the loan are: interest-only payments are due monthly until the student graduates; principal and interest payments begin some time after graduation (TBD based
on the when the student becomes gainfully employed).

What are the tax implications, if any, if the loan is not paid off within the original 9-year term?

Do the tax implications apply only to the grandparent (lender)?

Are there also tax implications that apply to the student (borrower)?

The bottom line is: In constructing an amortization schedule for a repayment plan, is there any reason to ensure that the loan is paid off by the end of the original 9-year term?

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If a concrete example helps, consider the following. A grandparent lends $20,000 to a non-dependent student for qualified educational expenses (i.e. a family loan). Monthly interest-only payments are due beginning one month later. Principal is to be
paid off by the end of 108 months later (9 years). Assume the annual AFR is 4.56%; 0.38% per month. So, the initial monthly interest-only payments are $76, which the student pays on time monthly. After 48 months (4 years), the student begins principal
and interest payments. A fixed monthly payment of $374 would fully amortize the loan at the end of the remaining 60 months (5 years). But the student can pay only $195 monthly, resulting in an outstanding balance of about $12,000 ($11,997.48) at the
end of the original 108-month term. Assume that the grandparent forgives the remaining loan balance, and the gift tax exclusion has been phased out at that time.

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