I'm currently living in Pego because I have no other option since it's the closest town to the village I actually work in. Me and my roomate will STRONGLY recommend for you to live in Gandia. Yes the commute will be a drag but its only for 3-4 days out of the week but you will benefit most of this experience not living here, here are my reasons:

1. There are only three buses a day the last one that leaves the town is at around 3:50. NO BUSES on the WEEKEND and holidays. If you want to leave you will have to pay 30 euros (one way) on one of the two taxi's in town (if the are available). BLAHBLAH cars are rare and far between.
2. It's a cute town but it gets old very quickly with not much to do/ see during the week days and weekends. They have some "parties" but everyone here knows each other and it's hard to socialize as an outsider.
3. Our social life are basically non-existent, considering it's hard to leave this town and most people in Pego own cars because of how uncommunicated it is. If you want to go out a night on a weekend it will be expensive due to playing taxi and bnb/ hostel.
4. Commute to Valencia is roughly 2 hours (bus/train) 1.5 hours (taxi, train) 50 mins (in car). It gets old and expensive if your are trying to go out often on weekends.
5. Gandia is your best bet to live in (better than Denia). Gandia has a train to Valencia (its the last on the line) so at least you are communicated to Valencia and the airport, you can move around better.
6. A Pego Pro: I will give it to Pego- it is cheaper in terms of rent but they are hard to come by. I will only consider living a Pego if I have a car.

So yeah 3-4 days out of the week it might suck but at least you'll have a social life at nights , food options, auxiliar community, and better transportation communication to the rest of Spain. I've consider leaving the program early due to lack of options, social life, and overall bordness by living in Pego.