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If an absolute preference for one sex is tolerated in institutions subsidized by Pell grants and guaranteed student loans, I don't see why a mild preference in favor of either sex to achieve "gender balance" should be disallowed.

I don't think this gets around the issue at all. If admissions should be merit-based and blind to all other factors, then they should be merit-based and blind to all other factors, regardless of Smith's existence. You're not in favor of anything else I can think of that does anything to address gender imbalances--for instance, the paucity of women in STEM fields. Why is it different in this case?