Do SMP's consider your undergraduate institution?

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In my own opinion, no.

A 3.2 is a 3.2 but if you were to put two identical applications together (never will happen) with two individuals with the same MCAT, same CV, same LORs, etc. and a decision had to be made one or the other, the one from Harvard is going to be affected more positively than that from San Jose State. Does this sort of make sense?

When they look at your application they see classes that fall into the pre-med categories like organic chemistry, general bio, etc. and the number of units and they see your grade. Unless you're taking them at a CC (even this is debated around here) so I'll add that this is my opinion, any four year accredited US school is fine for undergraduate analysis purposes. Again these are my own thoughts so take them for what you will.