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Learn more about Merit Financing, a form of Income Share Agreement (ISA), and how it might fit into your financial goals.

OUR FREQUENTLY ASKED QUESTIONS

1. What is Merit Financing?

Merit Financing™ is a form of Income Share Agreement (ISA), which provides students with educational funding in exchange for a small, fixed, percentage of the student’s future income, over a set period of time following graduation.

Merit Financing is not a loan, and does not create any debt.  Instead, it offers a much more flexible and safer method to finance your education related expenses as compared to private educational lenders.

Because the amount paid back is based on your future income, payments adjust to your ability to pay, and should always be manageable.  Since payments are measured against your actual earnings, with Merit Financing, it is ok if the amount you ultimately pay back is less than the amount you receive.

2. Why haven’t I heard of Merit Financing before?

Merit Financing is a form of Income Share Agreement (ISA).  The original idea behind ISAs are credited to Milton Friedman, an economist, who received the 1976 Nobel Prize in Economics.  

In his original 1955 essay, Friedman highlighted a market failure in the financing of higher education, and argued that education should be financed more like “equity” instead of through “debt”.  Rather than fixing loan payments at a set amount every month (as with debt), the amount a student-borrower would repay his/her funder, should be more like equity, and tied to the student’s future career success.  This is how equity investors of public corporations are paid. 

An ISA funder is like a shareholder of the student, and since the funder’s investment return is correlated with the student’s success, Merit Financing has the ability to align incentives between funder and recipient in ways that traditional private lending cannot.  Indeed, leading ISA funders will provide their recipients with career mentoring and job placement advice, which is not typical in the private loan market.

3. How does Merit Financing differ from traditional loans?

With traditional private loans, student-borrowers must pay back the principal amount and accrued interest, irrespective of their future income or employment circumstances.  Under a loan, failure to pay back accrued interest can lead to ‘negative amortization’, which means your principal loan balance increases over time despite making minimum payments.  Negative amortization also occurs during loan deferment (a hidden cost most loan-borrowers do not appreciate), so the principal loan amount owed is growing during deferment… leaving the borrower off in a much worse position than before.  

With Merit Financing, there is absolutely no risk of negative amortization. Merit Financing carries no interest, and has no principal balance that must be repaid.  Accordingly, there is absolutely no risk of negative amortization. Instead, the student agrees to pay-back a small, fixed, percentage of his/her future income in exchange for financing to be applied towards the student’s education or education related expenses.  With Merit Financing, the amount ultimately repaid may be more or less than the amount received.

4. Do I need a Co-Signer?

No! Our investment is in you.  Many of our customers are first generation students who have surpassed the educational attainment of their parents.  We believe that your access to higher education should not be based on your parents’ respective educational attainment.

5. Am I eligible for Merit Financing?

To be eligible for Merit Financing, you must be a U.S. citizen or permanent resident, over 18 years of age.

Our Merit Financing programs are designed around academic programs and eligible applicants must be pursuing a degree from an accredited university and/or graduate program for which we are currently offering Merit Financing. 

While your credit score is not a priority, certain merit indicators may overlap with items also included in your credit score, such as: recent garnishments, lien attachments, judgments or tax liens, bankruptcy, or unsatisfied suits or judgments.

If you believe you are a good candidate for Merit Financing, we encourage you to apply.  We are constantly evaluating new programs, and if we do not currently offer Merit Financing for your specific degree/career, we may do so in the near future.

6. What do you mean by merit worthy?

Most traditional lenders care only on your credit score.  At Meratas, we look past these (backward looking) metrics and place the emphasis on your future potential.  We call this your merit profile, and we do this by examining your academic, military and work achievements to ascertain your eligibility.

We know you are more than your credit score and we believe your past achievements are an important indicator of your future potential. That’s why we review your experience in school, academic record, the intended career you are pursuing, previous jobs and even the military to improve your merit profile.

If you believe you are a good candidate for Merit Financing, we encourage you to apply.  We are constantly evaluating new programs, and even if we do not currently offer Merit Financing for your specific degree/career, we may do so in the near future.

7. What makes Merit Financing safer than private loans?

Traditional private loans contain a principal balance plus interest, both of which must be repaid irrespective of your life circumstances. 

Since Merit Financing represents our investment in your future success, we assume the risk that the amount you pay us back may ultimately be less than the amount we funded you.  Moreover, with Automatic Deferment, your payments to us will halt during periods of unemployment, under-employment, or if you are unable to work due to serious illness. 

With Merit Financing, it is like having built-in insurance protection for your educational financing.  These built in protections come standard, and are a key feature which makes Merit Financing safer than loans and one of the most flexible financing alternatives available.

8. What makes Merit Financing more flexible than private loans?

Private student loans (debt) creates substantial risks to students if they cannot afford their payments after graduation, whereas Merit Financing payments are specifically designed to adjust with to your post-graduate level of income.

All our Merit Financing programs contain a minimum income threshold (i.e., the “floor”) and a maximum payment cap (i.e., the “ceiling”), so students are protected in both low income and high-income circumstances.  With Merit Financing, you will not pay us anything whenever you are earning less than your floor, and if you are gainfully employed, you will never pay us more than your pre-set ceiling.

With Merit Financing, it is like having built-in insurance protection for your educational financing.  These built in protections come standard, and are a key feature which makes Merit Financing safer than loans and one of the most flexible financing alternatives available.

9. What do you mean by built-in insurance protection?

Unlike traditional private loans which must be repaid irrespective of your circumstances, with Merit Financing, you will not be required to make any monthly payments during periods of unemployment, serious illness, or if you are earning less than expected based on your degree/career.  This includes periods of:

  • Illness: if you suffer a qualified medical disability which prevents you from working;
  • Under-employment: if you are employed either full-time or part-time and earning less than expected based on your degree and career projections;
  • Unemployment: if you are involuntarily unemployed (i.e., you lose your job at no fault of your own).
  • Voluntary workforce removal: Certain situations of voluntary unemployment (i.e., taking time off to travel, go back to school, or start a family) also qualify for Automatic Deferment, however these situations may extend your contract term.
We call this Automatic Deferment, and importantly, this will never lead to negative amortization.

10. How much can I apply for?

Depending on your chosen degree and intended career Merit Financing is typically awarded in amounts ranging from $5,000 to $15,000.  We do not control, and have no requirements stipulating, the nature or type of employment that students must pursue after graduating. 

11. If approved, how will I receive the funds?

If approved, your funds will be transferred directly into your designated bank account. Funding can be as fast as two business days once all documents are returned and your contract is approved.

12. Will applying for Merit Financing impact my credit score?

Completing our preliminary application, in order to assess your eligibility, will not impact your credit score.

While your credit score is not a priority, certain merit indicators may overlap with items also included in your credit score, such as: recent garnishments, lien attachments, judgments or tax liens, bankruptcy, or unsatisfied suits or judgments.

After you have received your preliminary quote, if you choose to continue and submit a full application, we may request a credit report as part of the final approval process, which is considered a ‘hard pull’ and would impact your credit score.

13. How are my payments calculated?

Following graduation (and your applicable grace period), your monthly payment will be based on a small, set percentage (typically between 3.95% - 9.95%) of your post-graduation income for the prescribed contract term.  After making ordinary payments over that term, no additional payments are required even if you ultimately pay back less than the amount we give you.

Since your monthly payments are calculated as a fixed percentage of your future income, if you become unemployed, face unexpected salary shocks or other work-related financial hardships, your payments will be commensurately lowered, or waived entirely.  We call this Automatic Deferment, which is like having  built-in insurance protection for your educational financing.

And, if you secure gainful employment, the most you might ever need to repay will never exceed your pre-set cap (i.e., your “ceiling”).

14. When do I begin repaying my Merit Financing?

Typical private lenders use a grace period because their loans must be repaid irrespective of your circumstances.  With Merit Financing, however, you will only pay us back if and when you are gainfully employed and earning above a pre-set minimum income based on your degree and career.

With Merit Financing, your contract term will start once you are gainfully employed, and begin making your monthly payments.   And, if it takes you longer than expected to secure employment, there is no  principal balance or interest to grow, so you have no risk of negative amortization

15. Will the amount I am responsible to repay grow through interest accrual or in the event of deferment?

No. One of the ways that Merit Financing differs from a traditional loan is that there is no interest accrual on the amount that is funded, and no principal balance that must be repaid.

During periods of involuntary unemployment, your account will be placed in Automatic Deferment, meaning your payments will be halted.  During this time, the contract term will continue to run, so if you remain in Automatic Deferment for the length of your contract term, you contract can expire even if this means you ultimately pay us back less than what we give you.

16. May I repay my Merit Financing early?

Yes! With Merit Financing, you have the flexibility to keep the contract for the full term and benefit from the built-in insurance protection against unemployment, or to terminate early and take advantage of our industry leading early payment incentives.  The choice is entirely yours.

If you achieve early career success you may choose to terminate your contract at any time prior by paying the incremental payment cap for the time period in which you desire to terminate.

With payment caps starting at up to 56% lower than other ISA funders, we reward students who achieve early career success.  Moreover, all regular monthly payments made prior to electing Early Termination are counted towards your early termination payment.

17. Are there any pre-payment penalties?

No!  In fact, we are the only ISA funder offering incremental payment caps designed to reward students who achieve early career success.  Our payment caps start as low as 1.1 times the funded amount, which is 56% lower than the comparable cap set by Purdue University (2.5 times the funded amount) for the same time period.   

18. Do you provide automatic payment discounts?

Yes! clients that authorize us to automatically deduct monthly payments from their designated bank account have a 1.00% discount built-in to their income share percentage.