Larson and his roommates lived in harsh conditions with little money or property. Martin, who was his waiting trainee and later would perform the role of Tom Collins in the original cast of Larson's Rent. For nine and a half years Larson worked as a waiter at the Moondance Diner on the weekends and worked on composing and writing musicals during the week. Larson moved to a loft with no heat on the fifth floor of a building at the corner of Greenwich Street and Spring Street in Lower Manhattan, where he lived with various roommates, among them Greg Beals, a journalist for Newsweek magazine and the brother of actress Jennifer Beals, and James Clunie, now a creative director at advertising agency BBDO. After graduating with a Bachelor of Fine Arts degree, Larson participated in a summer stock theatre program at The Barn Theatre in Augusta, Michigan, as a piano player, which resulted in his earning an Equity card for membership in the Actors' Equity Association. Burdick acted as Larson's mentor during his college education. During his college years, he began music composition, composing music first for small student productions, called cabarets, and later the score to a musical entitled Libro de Buen Amor, written by the department head, Jacques Burdick. He attended Adelphi University in Garden City, New York, with a four-year scholarship as an acting major, in addition to performing in numerous plays and musical theatre. There, he was active in dramatic and musical productions. Larson graduated from White Plains Senior High School in 1978.

Musicals by jonathan larson