User username from 127.0.0.1 not allowed because not listed in AllowUsers
What's going on? The user was created properly, it has been defined as having a shell entry and the entry for /etc/passwd and /etc/shadow is set just fine.
This is a new and very smart/secure feature of SSHD. It is simple and yet effective, but also very annoying if you didn't know about it being implemented and that hand editing of /etc/ssh/sshd_config is required to allow a newly added SSH user access.
Search for "AllowUsers"
You'll probably see this:
Just add your user underneath:
That's all there is to it.