I'm in Camp Tell-Her, so I'm only thinking about one side of the equation. But what if you asked friend if *she* would want someone very close to her to let her know the truth if she was in a similar circumstance? Most would say yes. In fact, they'd say they expect to be told, as part of "girl code", or whatnot.
The fact that they have huge debt problems is probably irrelevant from an etiquette standpoint, but this may make it even more important for her to have full disclosure before figuring out what to do next.