The removal of the carbon from Nd magnet scraps is indispensable for high-quality recycling by the induction melting method as a preliminary process. The Nd magnet scraps can be decarburized to a level of less than 0.03 mass% by using an oxygen source at high temperatures, as reported in Part 1. The decarburized Nd magnet scraps can then be deoxidized by using the Ca reduction to a level that allows commercial melting in an induction furnace, as reported in Part II. However, the undesirable iron oxide (Fe₂O₃) which causes a disadvantage for Ca reduction is inevitably generated by using an oxygen source at high temperatures. The aim of this work is to investigate an economical decarburization method in which only the carbon sources in Nd magnet scraps are decarburized, without generating iron oxide. The grinding sludge as Nd magnet scraps is effectively decarburized to a level of less than 0.03 mass% without generating any iron oxide by heating at above 1073 K under a pressure of less than 5.32×10⁻² Pa. The amount of oxygen in the decarburized powder is about 8 mass%, which is lower in comparison with its value in Part 1. In this report, the decarburization mechanism under reduced pressure using the grinding sludge, and its economic significance prior to the decarburizing method described in Part 1, are discussed.