I don't particularly like hostels (didn't even when I was a student), so when I list one you know it's got something special. This delightful example is easily accessible from Bellagio and other towns on the Centro Lago by boat, and is frequented about evenly by frugal adults and backpacking students. The dorms are relatively cozy, with no more than six beds per room. Most of the rooms have a view of the lake -- nos. 3, 4, and 5 on the first floor even share a balcony. Everyone enjoys the view from the large, sunny, communal terrace. One drawback: no luggage lockers. It's run by a couple of ex-social workers, and they serve an 8.50€ ($11) dinner that's so good it even attracts locals (you're expected to set your own table on the terrace, retrieve each course as it's called, and wash your own dishes).
You can explore the surrounding countryside on one of the bikes that are available or get onto the lake in one of the kayaks (rental of either for a full day is 11€/$14). Internet access is 3.50€ ($4.40) per 15 minutes; laundry is 3.50€ ($4.40) per load. The hostel offers special programs, such as 1-week cooking courses and an organized weeklong hike through the area. Curfew is 11:30pm.