Emily,
You can make the (apparent) text cut out easily, either by just using white Type (which may be live or outlined) or by applying an Opacity Mask in the Transparency (flyout) options, with Clip unticked and Invert mask ticked, the latter if you use white type (Invert Mask unticked if you use black Type).
This can be done to a raster image (a scan or whatever), or an Image/Live Trace of a raster image (which would have many paths).