No, the recruits dont end up getting washed away. I mean, some don't sign, but most do. They really should use those that don't as the walkon pool but that is a whole other topic. anyway, what probably happens that would cause a major problem is as follows:
All teams chase 4* and 5* players with 5* teams getting the most attention. 6* and 5* schools get most of them with a few going to 4* or 3* teams and teams start to filter down giving more attention to 3* recruits. 5* and 6* schools will fill out their boards here and 3* and 4* schools will get most of the rest. Teams will then move down to the 2* players. Since th 5* and 6* teams are pretty much full the 3*s and 4*s get 1st choice here followed by the 2* schools. 1* schools are given the scraps of the 2* recruits. Now we move down to 1* recruits and everyone kinda fills out meaning 1* teams mostly fill out here.
While this is not an ideal system it does have some advantages, especially in ease of programming. There isn't nearly as much work involved in writing a system like this as there would be in writing a robust system with actual logic. Also, it does accomplish the basic goal of getting good players to good schools and bad players to bad schools.
What should happen is the 5* and 6* schools should start off looking at 4* and 5* recruits then filling out with 3*s when they have the time and there are no more 4* and 5* players worth chasing or if they have serious needs that cannot be filled by the top 2 tiers.
3* and 4* teams should chase mostly lower 4* to upper 3* players to start looking maybe at 2*s to fill needs and chasing a couple upper 4*s or lower 5*s in their pipeline states and then fill out with lower 3* and some 2* recruits to fill in for losses.
1* and 2* schools should start out looking at mainly 2* recruits giving them 1st choice of them atleast letting them gain a lead. Also, they should look through the 3* teams and pick a couple to chase for each school allowing them an occasional pickup to really help the team out. They should then go back and fill in with the 1*s.
This would obviously not be the full list of determining factors in who they choose but it would be a starting point. This would allow lower rated teams to get a few good players and give them a chance to improve or to have a few good years here and there.