I feel very bad for your wife in this situation, and like a previous poster, I think it would be a bad idea for you to force her to take action against her family. I dearly love my husband, but I also love my parents and siblings no matter how badly they treat me. I don't think I could report them to the police over money - even this much money. Do they have a car or something else of value they can "give" you until they pay off the $17,000? If they have no assets and are unwilling to pay you back, I would protect myself from this in the future but pay off the money myself. I would let your wife know that if they do this again, you will be forced to take legal action. Your marriage and your wife are more important than this money. You don't want her to end up resenting you even though you are right and her mother and sister are wrong.
As much as I'd love to agree with you, I don't think relying on karma is a good plan.
In an ideal world, they would realize that what they did was wrong, that stealing 17,000 dollars from a family member is not good. And when the family member finds out, they say, "Well, that was not very nice! But I'm not going to report you for it, I'll let you go. Just don't do it again." The thieves would be terrified that their karma is now terrible, and will try to do something good to make up for it. They give their car to hold on to as a token of good faith (even though that will probably limit their money-making abilities and now the car just sits there unused). Meanwhile, the victim's kids no longer have a college fund. They will have to borrow their way through college. But, at least they have 17k better karma.
Enter the real world, where not reporting them may enable them to steal from someone else and ruin someone else's life. Filing a police report will protect the victim's (and non thieving) family and the thieves will have to pay back what they owe. Besides, it's just money, right?
If you're so worried about resentment in the marriage, ever think of the OP and maybe HE will begin resenting his WIFE for not reporting them? I agree, protect the marriage and report them, they won't go to jail and they will now have 17k in debt, exactly as if they had spent their own money. What's so terrible about that?