So I did some digging around. (And seriously, the decision to have all this stuff wide open burns my biscuits. Defaults should NOT be open, but I suspect I'm losing that battle.)
It looks like predictive text (which is those personalized suggestions, as well as possibly Android's text correction) does use a cloud service and a stored user dictionary to work at all. As you point out, this is awful for privacy.
I've opted to keep mine on despite the privacy awful, but if someone were, say, using E2E messaging services, it would be a useful side channel to pursue their predictive text entries instead of trying to take on WhatsApp or Signal head on.
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It looks like predictive text (which is those personalized suggestions, as well as possibly Android's text correction) does use a cloud service and a stored user dictionary to work at all. As you point out, this is awful for privacy.
I've opted to keep mine on despite the privacy awful, but if someone were, say, using E2E messaging services, it would be a useful side channel to pursue their predictive text entries instead of trying to take on WhatsApp or Signal head on.