Behind the Shake-Up at Temple U.: A Merit Scholarship That Grew Too Fast

[Updated (7/21/2016, 9:49 p.m.) with details of the settlement.]

One week after Temple University’s Board of Trustees voted no confidence in him, Neil D. Theobald announced on Thursday he would step down as president of the Philadelphia institution.

Last month Mr. Theobald fired Hai-Lung Dai, the provost, citing him for mismanagement of university funds. The president said Mr. Dai had allowed a merit-scholarship program to grow to $22 million above its budget.

At issue is who knew about the shortfall — and when. The board’s spokesman, Kevin Feeley, said Mr. Theobald was aware of the deficit in 2015, and allowed it to swell, from $9 million to $22 million, by March 2016. Mr. Theobald’s lawyer, Raymond D. Cotton, declined to comment.

Meanwhile, Mr. Dai’s lawyer has maintained that the former provost didn’t know about the budget deficit until March.

Mr. Theobald will officially resign on August 1, according to The Philadelphia Inquirer. He will get a year of sabbatical at full pay, health insurance and other benefits, and the right to assume a tenured faculty post, the newspaper reported, citing anonymous sources who were said to be familiar with the settlement.

Though no administrator has taken the blame for the deficit, it’s clear that the $22-million shortfall caused by a new merit-scholarship program played a large role in the leadership shake-up.

How does a change in financial-aid policy cause such a shortfall? In 2013, Temple rolled out a new merit-scholarship program, said Ken Kaiser, Temple’s chief financial officer and treasurer. For years the university had provided students with scholarships based on merit. But this program differed in its clarity: It laid out five metrics, including minimum grade-point average and SAT score, and promised that anyone who met them would qualify for merit aid, he said.

The new program aimed to raise Temple’s profile and help the university better engage with local high-school counselors, Mr. Kaiser said.

After the first year, Temple administrators found that the program had done more than just help promote the university. It also had helped draw a more economically and racially diverse freshman class, according to Mr. Kaiser.

“We’ve seen over the three years the program has been in place, not only has the academic quality of the incoming class improved year over year, but so too have all levels of diversity,” he said.

‘A Victim of Its Own Success’

The program did everything it was intended to do and more. The catch? It became too big for the university to keep up with it.

Merit-scholarship funds were stored in a financial-aid account, Mr. Kaiser said. Financial aid at Temple is funded partly through tuition dollars, and tuition alone couldn’t keep the growing scholarship afloat.

“The real issue is that the merit program grew at a rate that no one anticipated,” he said. “In fact, it was a victim of its own success.”

Jon Boeckenstedt, associate vice president for enrollment management and marketing at DePaul University, said universities tend to see enrollment jumps when they pivot as Temple did. Since Temple had never before posted requirements for merit scholarships, the program was in “uncharted territory,” he said.

Even though administrators use statistics, and their best intuition, to set enrollment expectations, sometimes the numbers don’t turn out as planned, he said.

Typically, about one-third of an applicant pool is unpredictable — swayed by the best deal, by prestige, or by other factors that the university can’t control, Mr. Boeckenstedt said. But when the prices students pay change, it’s tough to anticipate how they will react.

“The big lesson is that despite econometric models and neural networks and all those sorts of things, it can be really, really difficult to predict what a group of 17-year-olds will do in any given year,” Mr. Boeckenstedt said.

Now, amid leadership changes and a $22-million deficit, Temple has to pick up the pieces of a scholarship that grew too big for its own good.

The university has said that students who were promised merit scholarships for the fall will still receive the financial aid. But to make the program sustainable, Mr. Kaiser said, the university will change the scholarship.

In the main shift, the program will no longer be an open-ended guarantee. There will be limits on how many students will receive each level of the scholarship, he said.

The fixed number of scholarship recipients will keep the university from overspending, and will encourage students to get their deposits in earlier, Mr. Kaiser said. Temple will also start a mandatory annual review of the scholarship so any financial problems can be dealt with quickly.

Even with those changes, Mr. Kaiser said, he expects the scholarship’s importance, to Temple and its students, will still be on a steep upward slope.

Fernanda Zamudio-Suaréz is a web writer. Follow her on Twitter @FernandaZamudio, or email her at fzamudiosuarez@chronicle.com.