Hi sneak! Welcome to our ALL SPAIN Message Board
I'm guessing you're making the very common mistake with the term "hostel".
The word "hostel", as you're using it here, is an abbreviation for the term "youth-hostel" which is "albergue juvenile" in Spanish. However, in Spain and Spanish-speaking countries they translate the Spanish word of "hostal" to the English word of "hostel". It's probably the single most confusing thing to non-Spanish speakers regarding cheap lodgings traveling to those Spanish-speaking countries.
All those hostels (again, called "hostales" in Spanish) we speak about in Spain are usually between $25 and $70/night for a double. Hostels in Spain are budget hotels with private rooms, usually family owned and operated establishments.
There's little discussion about youth-hostels ("albergues juveniles") here because there are very very few which are licensed to operate as such. We've done the math and those other
so-called youth-hostels, after adding on the fees for towels, lockers, and whatever else, end up being about the same price as a private room (but probably without a private in-room bathroom) at a hostel ("hostal") where the towels and blankets and everything else is included in the price.
Madrid has only 3 official youth hostels and I haven't heard/read much discussion about them. You might find those which have already been posted by utilizing the SEARCH link above/right and typing as your keywords YOUTH HOSTEL MADRID
The only official youth-hostel in Madrid which has a website is the Albergue Juvenil San Fermín
and it's located outside of the city center and costs about 17 Euros after all add-ons are totalled. Just a bed for the night and the standard coffee/juice and toast with jam for breakfast is between 8-12 Euros. It's actually QUITE nice-looking too but not accessible by metro. You'd have to take a bus and buses don't run there after midnight (or before) so if you're returning late you'd have to take a taxi - and the cost of that taxi would bump you up to what it might cost to stay in a regular hostel with a private room in the city center.
And here are some informational pages (no prices/email listed) about the other two official youth-hostels in Madrid:
ALBERGUE JUVENIL SANTA CRUZ DE MARCENADO (closer to the old city center) @ http://www.reaj.com/fichas%20albergue/Em-MARCENADO.html
ALBERGUE JUVENIL RICHARD SCHIRRMANN (in the Casa de Campo - heard LOTS of horror stories about this one) @ http://www.reaj.com/fichas%20albergue/Em-RICHARD%20SCHIRRMANN.html
Oh, and one final note. You may sometimes see the curiously spelled (plural) word "HOSTALS". Be warned that this is spanglish
and doesn't exist in any language but helps English-speakers to discern one from the other. The Spanish tourism bureau themselves translate the Spanish word of "hostal" to the English word of "hostel".
Good luck and have a wonderful time in Spain!