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The argument made back then was that the Arts Commission intended the 35 reverse stars to be counted along with the 13 obverse stars, for a total of 48, matching the number of states in 1925, at issuance.
@FortCollins: I finally had the chance to review correspondence of the Commission of Fine Arts (CFA) regarding the design of the Stone Mountain half dollar, but could not find any discussion of the stars, their symbolism or specific direction the CFA provided to Borglum re: the stars on the coin.
I must admit, the story does have a certain logic to it - but is that enough?
The sculptor member of the CFA, James Earle Fraser, found multiple faults with Borglum's design which he communicated in letters to the artist, but they were directed at the figures of the Confederate generals within the design of the obverse, the head of Jefferson Davis' horse protruding into the obverse design from the right, the general style of the coin's lettering, the physical appearance of the eagle on the reverse and the crowded overall presentation of the coin's reverse design. I didn't come across any new direction/discussion re: the stars or the number thereof.
The only reference to the stars on the coin that I found is in the book
Give the Man Room by Robert Casey and Mary Borglum; the book tells the story of Gutzon Borglum and has a much wider scope than Stone Mountain. The volume recounts a conversation between Borglum and Secretary of the Treasury, Andrew Mellon in which Borglum coyly responds to Mellon's question about the 13 stars that are seen on the coin's obverse, by stating "It all depends on which side of Mason and Dixon's line you happen to live. They could, of course, stand for the thirteen rebellious states." (Of course, by "rebellious" Borglum meant "Confederate" vs. the original 13 colonies that rebelled against the British Crown.) Mellon reportedly laughed at Borglum's comment/joke and approved the preliminary design.
So, while my lack of specific evidence to the contrary in no way disproves the explanations that you've heard, it does lead me to think that the stars were not a focus for the CFA. If they do, in fact, represent the 48 States of the Union in 1925, I tend to believe it was a design detail Borglum devised on his own.