Win McNamee/Getty Images

Senator Elizabeth Warren (D-Mass.) on Wednesday urged Republicans and big banks to work with Democrats to find ways to solve the nation's $1.2 trillion student loan problem.

"Come and talk to us," she said at a Politico event in Washington, D.C.

Warren, whose bill to allow student borrowers to refinance old loans at current interest rates failed to clear the Senate in June after winning just three Republican votes, said she's open to compromise.

"I'm all for tweaking it if that's what they want to do," she said. "So far, it's been filibuster all the way."

Warren was joined by personal financial guru Suze Orman, who was more blunt in her assessment. Big banks, she said, are "financially raping our children."

Calling student debt the "most important thing" Congress can focus on, Orman called on lawmakers to allow student borrowers to discharge loans in bankruptcy.

Advertisement

Unlike other loans, student loans are generally not dischargeable in bankruptcy. Even if a borrower dies, cosigners - often parents - are typically responsible for paying off the debt, which can mean dipping into retirement savings or drawing equity out of a house.

That, Orman said, makes a student loan "the most dangerous loan you will get by far" and drags down the economy.

"This law is so stupid, I can't even tell you," Orman said of the default policy, adding that young people should prioritize student loan payments over other types of debt.

Advertisement

"I am convinced [the student debt crisis] is what's going to bring down the economy," she said. "We're heading toward the perfect financial storm."

Warren called out colleges and "out of control" tuition hikes for contributing to the student debt crisis. Colleges, Warren said, should be responsible for repaying a large part of their students' debt to the government if they don't adequately serve their students.

She also criticized the government for profiting from student loans.

While Warren would like to see her refinancing bill pass, Orman said students should be required to pass a financial literacy course before they are allowed to take out student loans. She also said a person's total student debt should not exceed a person’s first-year salary, even if that means attending a community college or vocational school to start.

Advertisement

Neither idea is likely to go over well with universities and big banks, who have relied on student loan money to attract students and customers. And passage of the refinancing bill is unlikely given the current political climate in Congress. The chances the legislation will pass will likely diminish even further if Republicans gain a Senate majority and Sen. Mitch McConnell (R-KY) becomes majority leader. Warren criticized McConnell for "leading the charge" against her refinancing bill.

"We're just going to have to keep hitting on this," she said.

Emily DeRuy is a Washington, D.C.-based associate editor, covering education, reproductive rights, and inequality. A San Francisco native, she enjoys Giants baseball and misses Philz terribly.