Originally Posted by Blackcat31:
I would simply email her back and tell her you are sorry things aren't going to work out and that unfortunately because you held the space and she already signed a contract you are unable to refund her money. Wish her well and leave it at that.
She signed the contract. That's when policies go into effect not the first day of attendance. 
I did this exact thing with someone and they ended up writing bad reviews for me everywhere online..... I did need the money since I held the spot for her but if I could have financially afforded it and had the opportunity for a do over I would have just refunded the money so I did not have to risk the negative reviews.