No issues with applying to Michigan. Make sure the counselor writes about this. Your daughter should not. They want a solid essay so they can learn about her. They are about GPA /rigor of classes and senior year classes count and they might want midterm grades. Senior year is for getting ready for college.
More importantly Michigan has great mental health help and a world class hospital. A friend’s of mine kid actually had to admit himself into the hospital for depression. Their treatment etc changed his life. Graduated and doing great years later.
Good luck.