It is an issue with the characterset that the scanner applies implicitly. Has nothing to do with the size of your files, but whether they happen to have the correct charset. If any character of your file is outside of the applied charset's range, the scanner's hasNextLine will return false.
Specify the correct characterset and you are fine, e.g. with
Scanner fileHandler = new Scanner(newFile, "latin1")
your test.txt will work fine.
So, why you just not debug the program?
add break point to the hasNext loop and go trough lines step by step.
This won't help here, because the logic in the code is fine.
Also, that's a pretty lazy answer, you can tell everyone who has issues with a program.