Incorrect. Please read this -- http://grammar.ccc.commnet.edu/grammar/pronouns.htm -- and let us know what you decide.
The error in the sentence is an ambiguous reference. An ambiguous reference occurs when it is unclear which noun a pronoun is referring to. In this case, the pronoun "they" is causing the ambiguity because it can refer to either the teacher or a group of people. To correct the error, you can specify the noun to which the pronoun is referring. For instance, you could say: "The teacher said he or she was going to grade the test over the weekend." This way, it is clear who will be grading the test.
