"As we create these programs, you can create strong incentives for the best teachers and principals to go into the toughest of communities, the hard-to-serve communities," he said. "And you also need to put -- and this is very important -- you're not just rewarding absolute test scores, what you really have to reward is growth, gain, how much are students improving every year. And if you could do those things, you create the right kind of incentives."
The Race to the Top also gives charter schools a clear seat at the table. To compete for the Race to the Top, states must not place limits on the number of charter schools.
Duncan explained his interest in this often controversial type of school system.
"I'm not a fan of charter schools," he said. "I'm a fan of good charter schools, and I'm a fan of innovation. And great charter schools around the country are helping to lead the charge of dramatically closing the achievement gap.
"We need to be very, very clear on charters," he added. "It's not just letting 1,000 flowers bloom. We should only be picking the best of the best, those that we select after [a] very vigorous and thorough selection process.
"We need to give them two things," he continued. "We need to give them real autonomy. These are, by definition, education innovators. They want [to] challenge the status quo. They have the vision. We want to give them the room to operate and free them from bureaucracy. We also have to pair that with accountability."
The Race to the Top encourages states to use these autonomous institutions to turn-around low-performing schools. Duncan, however, reiterated his belief that charters are not an exception to the rule.
"If you allow third-rate charters to continue to operate, you really endanger a very, very significant education movement in our country," said Duncan, who closed down three under-performing charter schools when he led Chicago's schools. "So this is not just invest wily nilly, let 1,000 new schools open. Let's invest in those charters that have proven ability to dramatically improve student achievement."
Duncan has a long, personal history with President Obama. The two regularly play basketball together -- a passion from Duncan's early days as a professional basketball player in Australia.
Duncan first befriended Craig Robinson, Michelle Obama's brother, before becoming friends with the future president. The two later worked together in Chicago, when Obama served in the state legislature and Duncan served as Chicago schools chief.
Duncan eventually became Obama's education advisor on the campaign trail before following the president to Washington.
They may be close friends but, on or off the basketball court, Duncan said he has no problem challenging his boss.
"I don't at all, and we are playing [basketball] against each other, trying to kill each other," he said, laughing. "What we have always had is just a really honest relationship. I'll challenge him. He'll challenge me. Luckily, we see the world in very similar ways."