Is it worded in your contract?
I totally understand where everyone is coming from, it's a tough call. Think of it this way ~ if you were putting a deposit down on something to buy like a sofa and then change your mind because you lost your job, that store won't be giving back that deposit once you sign on the dotted line. Yes, we are not selling sofas and our business is families but we are doing just that, running a business. You could come up with a compromise and give 50% back and explain that you understand and respect her choice to have her Mom watch her kids- the other portion that you have written in your contract is non refundable is being used to adertise for the spots that you possibly missed filling with potiental clients while she held the spots.
Word of mouth travels fast in any business and in a small community even more so but, having said that, do you want someone who is going to take the negative without understanding both sides. I think that might be a happy medium? And do you have the deposit sitting in an account and or folder for their first or last week of care, if your like me, it's been spent

Good luck ~ hard one. Let us know how it works out for you.