If users are unable to SSH into your server, they may not be assigned a Home folder location on the server. After entering a password three times, a "permission denied" message appears.
You can tell that the user needs a Home folder location if the system.log on the computer whereRemote Login (SSH) is enabled contains a message similar to this:
sshd: <username> [pam][<pid>]: in od_record_check_homedir(): failed: 7
To resolve this issue, assign the user a Home folder location on the server. "Services Only" user accounts created in OS X Server, and "Sharing Only" accounts created in OS X, are not designed to connect using Remote Login (SSH).