Yes, she is paying for materials AND time. And she offered to bring her own machine in for me to sew on at school, or bring it home to use if I don't want the wear and tear on my own machine. (Her Bernina is much nicer than my Brother, I'm sure! - for those that missed it, she has a ton of fabrics and a machine, because she intended to learn to sew. But she got really frustrated and gave up, but still has all of the stuff.)
Also, as an update; our school has an open house coming up in June. I offered to throw together a baby quilt to donate so we can raffle it (since we are going to start taking 1-2 year olds) She said she will BUY one from me, instead of me donating it, and she also wants me to set up a booth showing my baby quilts, boo-boo pillows, etc. that I make to sell. (We are allowing kid-oriented businesses to set up tables during the open house).