In these circumstances, it is better to work with them and allow them to move.

I know your initial investment wasn't one that you would have normally done, but the circumstances permitted you to do so. 

Dog feces indoors, carpet stains, stove looked like it was 50 years of neglect(was brand new). 

I don't know that it would fly with the section 8 folk- they probably have certain boxes they have to check, and heat pumps likely haven't made it onto their checklists.If it were me, and I didn't already have heat pumps, I'd probably go with baseboard electric(in your circumstance.

My only concern is, I do have a large student debt (due to extenuating circumstances, don't have the degree necessary to get a big check to pay it off).

I have told my dad that absolutely under no circumstances should he provide her with money to go to school.

Of course at this point I would be looking for an equity partner (most likely family) as I do not have 300k + to exhaust, but I am just looking for your thoughts on my circumstance.

But the circumstances are not promising either way.  

I can't imagine an insurance carrier covering a landlord under these circumstances, if they did I would think they would need to be informed of what's going on and agree to it, and with a higher premium for that risky time period.

Here is a section from my FHA loan (emphasis added):"Borrower shall occupy, establish, and use the Property as Borrower's principal residence within sixty days after the execution of this Security Instrument (or within sixty days of a later sale or transfer of the Property) and shall continue to occupy the Property as Borrower's principal residence for at least one year after the date of occupancy, unless Lender determines that requirement will cause undue hardship for Borrower, or unless extenuating circumstances exist which are beyond Borrower's control.