PA28 STUDENT PLT AND INSTRUCTOR EXCEED ASSIGNED ALT DUE TO STUDENT'S SPATIAL DISORIENTATION.

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ON MAY/FRI/03; A STUDENT PLT AND I (I AM A CERTIFIED FLT INSTRUCTOR) DEPARTED AT LCL FOR AN INST TRAINING FLT. THE STUDENT WAS AT THE CTLS DURING THE TKOF. I REQUESTED A CLRNC FOR IFR TO VFR ON TOP. AFTER TKOF WE WERE CLRED TO FLY HEADING 180 DEGS AND MAINTAIN 3000 FT. THE STUDENT REMAINED AT THE CTLS FOR THE CLB INTO THE CLOUDS. THE CLOUD BASES WERE 1600 FT AND THE TOPS WERE APPROX 3200 FT. AS WE APCHED 3000 FT; THE CLOUDS BEGAN TO THIN AND WE STARTED TO BREAK OUT. WHILE STILL ASCENDING THE STUDENT PLT BEGAN TO SHOW SIGNS OF SPATIAL DISORIENTATION DUE TO THE PASSING PATCHES OF CLOUDS AND BLUE SKY. I WAS CAREFULLY WATCHING THE STUDENT PLT; THE ATTITUDE INDICATOR; AS WELL AS THE HEADING INDICATOR FOR INDICATIONS OF CHANGES IN BANK ANGLE DUE TO SPATIAL DISORIENTATION. CONSISTENT WITH STANDARD PRACTICE FOR FLT INSTRUCTION; I DECIDED TO GIVE THE STUDENT PLT A BRIEF CHANCE TO USE THE INSTS TO WORK THROUGH THE DISORIENTATION. DURING THIS BRIEF TIME PERIOD WE WERE CONTACTED BY APCH AND ASKED WHAT WE WERE DOING AND IF WE HAD ALTIMETER PROBS. THE STUDENT PLT KEYED THE MIKE AND REPLIED THAT WE DID NOT HAVE ALTIMETER PROBS; BUT FAILED TO START AN ALT CORRECTION. AGAIN APCH CALLED AND ASKED IF WE UNDERSTOOD OUR LEVELOFF ALT AND REMINDED ME THAT I HAD READ BACK THE CLRNC. DURING THESE COMS; I IMMEDIATELY TOOK CTL AND RPTED TO APCH THAT WE WERE DSNDING FROM 3200 FT TO 3000 FT. AT 3000 FT WE WERE BACK IN THE CLOUD TOPS AND THE STUDENT WAS UNABLE TO RESUME FLYING DUE TO HIS CONTINUED SPATIAL DISORIENTATION. THE STUDENT DID NOT ASK FOR CTL; NOR DID I GIVE IT BACK TO HIM UNTIL WE WERE VFR ON TOP.