The PC is expending a feat slot, so there should be a power boost. Smite damage is spectacular when it happens, but it's not all that much across the entire adventuring day. The book recommends 6-8 encounters per day; but even if you reduce that to 4, increasing the size of smite dice does far less than you'd think. At a rough calculation, increasing smite dice from 1d8 to 1d12 has about the same effect on total damage output as adding +2 to Strength. You do have the ability to focus that additional damage in a nova burst, which is nice, but you give up the other benefits of a Strength increase. Seems fair.
But that's just for a feat which boosts your smite dice to 1d12, full stop. If the PC is sacrificing versatility by giving up spellcasting, the feat should also grant an additional way to use those spell levels. My suggestion: Whenever you use Lay On Hands, you can expend a spell slot and add 6 points per spell level to the amount healed.