Knowing something about how paper making works, I'm not at all surprised by the idea; since part recycling is going to have reduce everything to fibers anyway, I'm not sure why including clothes which you could use as feedstock to make paper would necessarily be functionally any different to the recycler than reducing those clothes to fibers, combining those with other fiber sources, making paper out of that, and then putting the resulting paper into the recycling.

I loved this article on making paper for U.S. currency, which is produced by one company out of cotton and linen. Up until very recently, the company used denim as a source of raw material.

> "But recently, Americans decided they liked jeans that stretched, so jeans companies began adding spandex to their fabric. Money with spandex in it wouldn't be money anymore, which means much of Crane's time is now spent on a global search for waste cotton that wasn't used to make elastic pants."

http://www.esquire.com/news-politics/a24292/benjamin-hundred...

"Before the industrialisation of the paper production the most common fibre source was recycled fibres from used textiles, called rags."

https://en.wikipedia.org/wiki/History_of_paper#Fiber_sources