The states are: Arizona, California, Colorado, Florida, Georgia, Hawaii, Illinois, Kentucky, Louisiana, Maryland, Massachusetts, New Jersey, New York, North Carolina, Ohio, Pennsylvania, Rhode Island, and South Carolina.
The competition rewards ambitious reforms aimed at improving struggling schools and closing the achievement gap.
"It's being driven by great educators and administrators who are challenging the defeatism and inertia that has trapped generations of children in second-rate schools," Education Secretary Arne Duncan said in a speech announcing the finalists.
Applications were screened by a panel of peer reviewers, and finalists will travel to Washington in coming weeks to present their proposals.
In all, 35 states and the District of Columbia applied for the second round of the application. The 19 finalists have asked for $6.2 billion, though only $3.4 billion is available.
Dozens of states passed new education policies to make themselves more attractive to the judges.
New York, which was a finalist in the first round but did not win money, lifted its cap on the number of charter schools that can open annually from 200 to 460. Colorado passed laws that would pay teachers based on student performance and can strip tenure from low performing instructors.
Two states, Tennessee and Delaware, were awarded a total of $600 million in the first round.
Their applications were praised for merit pay policies that link teacher pay to student performance and for garnering the support of teachers' unions. Tennessee and Delaware also have laws that are welcoming to charter schools.
In the first round of the race, some stakeholders were reluctant to support applications tying teacher evaluations to student test scores.
Second round winners will be announced in September.
"Just as in the first round, we're going to set a very high bar because we know that real and meaningful change will only come from doing hard work and setting high expectations," Duncan said.
