Tenant moved out with 2 week notice.

[David Florist]

So i'm in a rather peculiar situation. 

Backstory:
I rented a room in my house to a friend (let's call him bob). Bob is a great friend of mine for over 20 years and decided to live with me to finish out his last semester in College. Bob has a low paying job and was going to pay for rent using money he was receiving for his schooling. Since he was only going to live here for a few months I had him sign a month-to-month rental agreement with a 60 day notice vacate. He signed and away we go.
Fast forward a couple months to the present. He received his school money and actually paid me for September and in advance for Octobers Rent. Mid September he received notice that he could no longer attend school for the semester and had to drop his classes (due to some political bull the school was pulling, not entirely Bobs fault). With 2 weeks left in September Bob comes to me and says he is going to move out at the end of September.

Question:
Bob has moved out entirely at this point, but has already paid for October and does not plan on moving back in. He is demanding his money back for what he paid for October. What should I do? Give him his money back? have him sign something and keep half/months rent for inconvenience? or keep the cash and move on? - There is nothing in the rental agreement that mentions penalties for moving out early.

Thoughts:
1. He is a dear friend and although very unintelligent with financials has actively chosen to screw me over putting me in a position where i cannot get another tenant for at least a month.
 2. He broke the rental agreement on more than one occasion and abused our friendship (to an extent) to move out early.