What does this letter from the State of Kansas mean?

Just got a certified letter from the state, saying:

“NOTICE OF INTENT TO USE YOUR FEDERAL PAYMENTS TO PAY YOUR KANSAS DEBT.

If you do not pay the balance due within 60 days from the date of this notice we will submit the unpaid balance to the United States Department of Treasury.”

Of course, this would come on a Saturday. We owed them $1000. I’ve been paying the minimum amount due ($104) faithfully, every month. The balance is now $524, but they tacked on $61 in “penalty and fees” so I owe $603.

I am confused. They act like I’m delinquent or something, and I’m not.

I’ll be calling them on Monday, but I thought maybe you guys could put my mind at ease until then, cause this kind of shite makes my stomach hurt.