While it is definitely beneficial to spend at least a year in the dorms, off-campus housing is highly recommended. Madison has a plethora of houses, apartment buildings, and co-ops for students to live in. The general rule is that the closer you are to campus, the more you're going to pay. These areas include Langdon Street, Gorham Street, Gilman Street, and University Avenue. For some, though, being two minutes from State Street and ten from the academic buildings is worth it. If you decide to be one of these people, you are looking to pay anywhere from $500-$1,000 per month. However, if you can handle taking the city bus, or even doubling that distance to campus, rent prices will drop dramatically. For those unable to pay the higher rates, try housing near Capital Square, notably Carroll Street and Main Street. Housing in these areas are comparable in size to the closer locales and won't charge astronomical amounts.
In general, students are big fans of off-campus housing. Not only do you finally have a place of your own, but you also don't have to travel far from campus. Namely, the areas surrounding State Street and Capital Square are filled with affordable and comfortable housing. Students do advise that you start looking early to secure just the right place.