(a) If a State fails to repay the amount of principal and interest due at any point under a loan agreement developed pursuant to section 406 of the Act:
(1) The entire outstanding loan balance, plus all accumulated interest, becomes due and payable immediately; and
(2) We will reduce the SFAG payable for the immediately succeeding fiscal year quarter by the outstanding loan amount plus interest.
(b) Neither the reasonable cause provisions at Sec. 262.5 of this chapter nor the corrective compliance plan provisions at Sec. 262.6 of this chapter apply when a State fails to repay a Federal loan.