Assuming the company does not default, the equity holders receive the benefit of the tax shield as an annuity. That means, as you suggested, one should discount the tax shield at the cost of debt. But, equity holders receive profits after tax, which implies using the after-tax borrowing rate. See the Holthausen and Zmijewski [textbook][1] for a more complete discussion.


  [1]: https://cambridgepub.com/book/corporate-valuation