Borrowed amounts used to support the older child is considered support by that child.
IRS Publication 501 Dependents, Standard Deduction, and Filing Information, page 19 states:
Tax-exempt income
In figuring a person's total support, include tax-exempt income, savings, and borrowed amounts used to support that person.
Example 2.
K, your sibling’s child, takes out a student loan of $2,500 and uses it to pay college tuition. K is personally responsible for the loan. You provide $2,000 toward K’s total support. You can't claim K as a dependent because you provide less than half of K’s support.
Another issue to consider, also on page 19.
Person's own funds not used for support
A person's own funds aren't support unless they are actually spent for support.
Imagine this scenario.
In the example above, if the child borrowed $10,000 in 2023 and saved back $7,500 for use in 2024, the $2,500 spent in 2023 is considered the amount of support by the child in 2023.
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