Without getting too much into the debate of what is merit and what isn't merit (hurt feelings and all of that), I think most private schools (except for the tops - Ivies, Duke, Stanford - who claim to discount the fee solely on need and not "merit") take significant liberties by slashing the "sticker price." They can call it merit aid or whatever, but mostly they have to do so in order to remain competitive. Thus, I would imagine that almost everyone qualifies for the rebate in some way or form. I think that these schools do their best to couch these merit awards as some type of grand achievement.
Even with the significant price slash private universities usually will cost much more that in-state universities. There has been much discussion on this thread about the low acceptance rates in public universities. The new hierarchy seems to be top end private (Ivies, Duke, Stanford, Vanderbilt, University of Chicago), followed by major state research universities (Berkeley, UCLA, Michigan, UVA, North Carolina, etc), followed by other private schools, and then rolling admission state schools.
I know that in my state Furman University was always considered the most prestigious school. The reported acceptance rate is 65% - not exactly difficult. Going back to the example I cited a few pages back, Clemson is in the thirties - very difficult. The all-in cost for Clemson is $25,000/year. This can easily be reduced by earning a state-sponsored scholarship available to all South Carolinians and there are, or course, other need and achievement bases scholarships available. For a good student at Clemson (and based on the acceptance rates you have to be one to get it) the real cost per student is probably in the $15-20k/yr range.
Compare that to the all-in cost at Furman which is $61,000/yr. Even when $30,000 is knocked off the sticker price under the guise of merit the private school is still substantially higher than the state school. And while a Furman degree still might mean something the facts are that in the isolated comparison between these schools the state school seems to be a better all-around deal (cost, quality.) Of course, there are certainly valid reasons to attend private schools such as the intimate environment, personal attention and perhaps courses of study.