Other guy is right. The collection agency buys the debt from the creditor. A collection agency can't create additional debt for a person by simply entering into a contract with the original creditor. You cannot be held to a contract you are not a party to. I guess they can add on the extra 25%, but what did you ever agree to that would hold you responsible for that 25%?
As to the question, I would imagine that they would settle it for a reasonable amount. In MI, at least, all civil cases must first go through case evaluation and settlement conferences. If whatever state you are in has similar laws, it will cost the company more than $1,700 to send an attorney to the case evaluation, settlement conference, and actual hearing on the motion for default judgment.
this was what i was going to say first will it be worth it. are they bluffing. how long do they take to take someone to court. after you get a default judgement if that happens they'll look at your finances and see what you can pay and if it's worth pursuing if not it'll just go on your credit report and that's that.