The focus of this paper was on the roles of Higher Education Institutions (HEIs) especially universities in economic development, paying particular attention to the challenges and prospects of the Nigerian Universities. The role of higher education as a major driver of economic development is well established, and this role will increase as further changes in technology, globalization and demographics impact Nigeria. To remain competitive in the light of these changes, Nigeria as a nation will need to improve her productivity and adopt an innovative spirit. Higher education has the capacity, knowledge and research necessary to help achieve these goals but because of the numerous challenges ranging from, underfunding, eroded ethical values and academic standards, poor planning and implementation, among others they have been prevented from performing one of their major and most important roles which is, being the major driver of Nigerian's economic development. But still even in the midst of these challenges, there are a lot of prospects that when sincerely and properly pursued will reduce some of these challenges.