How do you get such borrowed books on your phone? If it's via a library's app, it's definitely going to continue living in that app. If you're borrowing physical audiobooks from the library and ripping them into iTunes to listen via your phone, then you need to tag them as audiobooks. If you're doing something else I'd be interested to know about it.
Here's how to tell iTunes that a recently ripped audiobook isn't music:
Once they're ripped into your library, likely along with all your music, highlight all the tracks and open the "Get Info" window. Go to the "Options" tab and change "media kind" to Audiobook.
Maybe you already knew how to distinguish audiobooks in your iTunes library, but I only discovered it recently and figured I'd share for all. I imagine doing this will support the shift into iBooks with 8.4.