My department has both funded and nonfunded Masters programs. For the funded program, they do something similar to yours -- take most of it towards your promised funding (although you do come out a bit ahead, plus there is a top-up award of a couple thousand dollars from the school as a reward for winning a major scholarship). I don't know the details, however, as I wasn't accepted in to the funded program -- I was waitlisted but never moved up the list, and am instead in the completely unfunded version of the same thing. Which is where I got the last laugh when I actually did win an OGS -- it would have saved my department a bunch of money if they HAD given me one of their funded spots!