No, UCF is playing in the FBS because of money, the 'good ole boys' are playing in FBS because that is where they have been since college football's infancy. The G5 have even agreed to the rules that give the P5 the power to set up the current playoff that doesn't have auto-bids because they don't want to lose access to the millions they get as hush money to fill out P5 schedules. These G5 schools don't care about winning a championship until they go open hand to the media to try to get someone to make the case that a team, which has literally played nor beaten any team of any account, should be in the playoffs.
Even by your own account Michigan has a better win than UCF in Penn State. If they beat Ohio State then they will have 2. Plus they will have played another 7 games against opponents that would have a better chance at beating UCF than any team on UCF's schedule. Their one loss is to another team that is likely going to be undefeated and in the playoffs...by playing what is funnily enough being called a 'weak' schedule, but compared to UCF, ND's schedule is Herculean. Michigan's three game slate of Penn State, Ohio State, and Notre Dame is beyond what UCF has faced in 2 years, but it is Michigan that is undeserving in your world.