I'm tempted to say your friend is screwed, since a good lawyer might cost more than the price if the contract. However, if you have a law school nearby, you can get a team of law students working for her for nothing. They might be enough of a nuisance to make the contract-holder drop the case, especially since it seems your friend has no assets to claim, even if the dojang won. It's not a suit worth defending. If she can't pay her dojo tuition, she definitely is not worth suing.

I'm sure the contract-holder has a formula for deciding how worthwhile these contracts are. It's probably a formula based on how deep the pockets are (empty) versus how much effort it would take to enforce the contract (much) multiplied by the hourly rate of their lawyers and debt collectors (more than the payoff). She might have to pay them off, but nowhere near the value of the contract. The bigger of a pain she is and the less she can pay, the less she will have to pay. Bringing in law students will just make her a bigger pain. For every hour the students waste, they're getting college credit. For every hour the company brings in professionals, they are losing money in billable hours.

They could just put a notice on her credit report and hope to be paid someday. Unless she's looking to buy a house or get a security clearance, they will not see anything soon. They know that. They just need to know that she knows it too.

I ordered some stuff from Century for my dojo a couple years ago and for about a year got magazines all about how to squeeze more money out of my students. It disgusted me. Maybe I'm biased, being from a free, nonprofit dojo, but I'm always nauseated by the business end of it. When your friend gets free of the dojang, she might start looking for the nonprofit dojos. There are a lot of us out there, and there's a difference between an instructor who looks at you as a student and one who looks at you as $.