"He earned a lot of merit by his good deeds". "Merit" is an intangible award for doing something good or kind. Kinda like karma or fame of a scientist or adoration of an artist.

I think it sounds unnatural to say “students with good merit...” ‘Merit’ can be a noun, a verb or an adjective. Teams will be selected entirely on merit. (Noun. There won’t be any other factors other than how well they play ) The accounting team merits a bonus. (Verb. They did something that deserves a bonus) The company gives annual merit raises. (Adjective. The raises are determined by the performance of the employees.)

Merit can mean something similar to "level", "value", "quality" or "rewards". Examples: "Students with good merit received a gold star sticker." "He helped her, hoping to gain some merit from it." "She is an author of many notable works of merit". "His argument had no scientific merit." It can also mean "to be worthy of " or "entitled to" "I've lost enough weight with these diet pills to merit the high price." "This merits a celebration!"

He does a great job and deserves merit for it.